A bill requiring pension plan sponsors to provide participants and retirees with key information when offering lump-sum buyouts was introduced Monday in the Senate.
The bill would require plan sponsors offering buyouts to provide participants and beneficiaries a paper notice 90 days before the period in which they must make an election; a comparison of benefits, explanation of how the lump sum was calculated, ramifications of accepting a lump sum such as the loss of certain federal protections, details about the election period, and where to follow up with questions to be included in the notice; and a disclosure to the Department of Labor, according to a fact sheet.
The legislation, the Information Needed for Financial Options Risk Mitigation Act, referred to as the INFORM Act, was unveiled by Sens. Patty Murray, D-Wash., ranking member of the Senate Health, Education, Labor and Pensions Committee, Tina Smith, D-Minn., and Tammy Baldwin, D-Wis.
In March 2019, the Internal Revenue Service and Treasury Department said that they would no longer amend the minimum required distribution regulations under 401(a)(9) of the Internal Revenue Code to formally ban U.S. companies from offering lump-sum windows to retirees and beneficiaries.
The announcement reversed a 2015 notice in which the IRS said it intended to amend the code to disallow lump-sum offers to participants already receiving benefits. The 2015 notice was issued after a GAO report found that disclosures to retirees about these offers often omitted key information and that retirees often did not fully understand the trade-offs involved.
"No one should ever have to make a decision that could seriously affect their plans to securely retire without being given all the information they need to understand the consequences," Ms. Murray said in a news release. "While President Trump has made it clear he's more concerned with companies' profits than their workers, I'm fighting to make sure everyone who gets offered a buyout of the pensions they were promised and have earned also gets the information they need to choose what's best for their financial future."
Will Hansen, chief government affairs officer of the American Retirement Association and executive director of the Plan Sponsor Council of America, said ARA supports efforts to ensure that plan participants receive effective communications that impact their ability to save for a secure retirement and will work with Ms. Murray to address her concerns.
"However, at the same time, elected officials should recognize that a primary reason companies offer pension buyouts is because of the unnecessary increases in (Pension Benefit Guaranty Corp.) premiums enacted into law to pay for unrelated programs," Mr. Hansen said. "The use of PBGC premiums to pay for unrelated programs is a budget gimmick utilized since 1982. If the goal is to decrease the number of pension buyouts, Congress should determine if a decrease in premiums would solve this issue over an increase in disclosures."