The “USA Retirement Funds” Act

[updates added Feb. 21]

OK, so this is a really cheesy name: “USA” stands for Universal, Secure, Adaptable, or the like. But this is legislation that Senator Tom Harkin introduced on January 30th, but which seems to have gotten no publicity. And, as I’ve increasingly made my practice, I’m going to just read through the bill and share my notes with you (though I may be distracted by the free skate coverage), with summary and commentary to come later. (Here’s the link, for you to follow along at home, though the version I’m working with, off the company intranet, has page numbering.) 151 pages — ready?

TITLE I—USA RETIREMENT FUNDS

Sec. 101. Automatic USA Retirement Fund arrangements. The key: “Each covered employer shall make available to each qualifying employee for the calendar year an automatic USA Retirement Fund arrangement,” where “covered employer” means those employers who do not already provide a “qualifying plan.” A qualifying plan is defined as a plan described in section 219(g)(5) of IRS Code of 1986, except that these types of plans do not count: frozen DB plans, DC plans without a lifetime income option, DC plans without autoenrollment, or with too small an employer contribution. Also excluded are very small employers (fewer than 10 employees earning greater than $5K per year, or new companies (less than two years old), and church plans which are already exempt from various pension rules.

The “USA Retirement Fund arrangement” itself means a plan in which each employee is eligible to contribute via payroll deduction, and is automatically enrolled (with opt-out permitted). Moreover, any employee who opts out will be re-auto-enrolled (with opt-out again permitted) every two years. The auto-enroll amounts increase each year on the following schedule:
2015: 3%
2016: 4%
2017: 5%
2018: 6%
If an employee does not select a particular investment fund, the employer will choose instead.

Sec. 102. Establishment of USA Retirement Funds. For any particular fund wishing to be deemed a “USA Retirement Fund” a board of trustees applies for determination by the Secretary of the Treasury. All such funds are to be listed publicly on a website. Any individual may participate in any USA Retirement Fund “for which such individual meets the eligibility requirements.” A USARF will be governed by a board of at least 3 trustees independent of the fund service providers, all of whom shall meet certain qualification requirements, and the Secretary of the Treasury will have the authority to remove a misbehaving trustee or appoint new ones if needed. The fund shall make available its investment policy, a performance assessment of the trustees, the trustee compensation policy, and related information. Participants/beneficiaries of the Fund shall be able to vote (but in a non-binding way!) on the trustees’ pay (for a fund with more than 250 million in assets) and petition for removal of a trustee.

Employer contributions: may make up to $5K (indexed for inflation), with the same dollar amount or percentage per employee.

Required annuity: not a fixed annuity but “may be adjusted to reflect the experience of the Fund as necessary to protect the financial integrity of the Fund, except that annuity payments for those in pay status shall not be reduced more than 5 percent per yaer unless the Fund is faced with a significant financial hardship and the Secretary has approved the reduction.” Specific payment forms: benefits must be in the form of a joint and survivor annuity (that is, reduced benefits for a spouse upon participant’s death), with a survivor’s annuity available for death before retirement. (Same as for qualified DB pensions now.) Alternate payment forms rquire spousal consent. Benefits may begin anytime after age 60 but before age 72.

Benefits may be transferred from one plan to another no more than once a year. Distributions are only allowed if rolled-over to another retirement plan. After age 60, a lump sum of the greater of $10,000 or 50% of the benefit is possible if a participant has “sufficent retirement income” or is facing a “substantial hardship.”

A fund “shall establish and maintain mechanisms for adequately securing the payment of annuity benefits from the fund” and must disclose those mechanisms. The goals are to provide lifetime income, protect against longevity risk, and minimize volatility for pensioners and those near retirement. This may be through self-annuitization (instead of purchasing annuities from an insurer) if the fund meets specified requirements, which shall be updated periodically to reflect “changing economic and business conditions.”

Annual statements, summary plan descriptions, and similar reporting will be required.

Sec. 103. Commission on USA Retirement Funds. An independent, private commission, the Commission of USA Retirement Funds Funding, consisting of 9 individuals appointed by the Secretary of the Treasury, no more than 5 from any one political party, who may themselves hire staff as necessary, will formulate recommendations on funding and distribution requirements for USARFs, including setting the annuity factors and adjustments for experience (adjusting benefits upwards or downwards). Mortality table will be specified by the Secretary and revised as needed; interest rates will be based on high-quality government bonds and likewise prescribed by the Secretary. The Commission will also report on best practices for governance of boards of trustees.

Sec. 104. Limitation on employer liability. Employers will not be treated as fiduciaries with respect to the USARFs they offer their employees.

Sec. 105. Enforcement and fraud prevention. An employer who doesn’t make a USARF available will be fined $100 per employee per year, unless the employer had a good excuse (to paraphrase). Also, no one is allowed to lie — e.g., a Fund cannot deceive participants with respect to the financial condition of the fund.

*** So that’s it about USARFs. Can we please call them something else? My vote is for Pooled Retirement Funds. You can even acronymize this to Porfs. But let’s continue on . . .

TITLE II—DEFINED CONTRIBUTION PLAN REFORMS

Subtitle A—Savings Enhancements

Sec. 201. Pooled employer plans. Various enhancements are offered for multiple-employer plans — a form of defined benefit plan in which multiple employers share a single investment fund. (This is different from a multi-employer fund, in which a union runs a plan for its members.) Specifically, the requirement that such employers have a “common interest” is removed.

Sec. 202. Pooled employer and multiple employer plan reporting. Additional reporting requirements, which aren’t entirely clear without reference to the original law (ERISA) which is being amended in these sections.

Subtitle B—Participant Protections.
Sec. 211. Alternative fiduciary arrangements to protect plan participants. More ERISA amendments around fiduciary requirements.<

Sec. 212. Rollover protections. Financial advisors who advise on what to do with distributions fall under the purview of ERISA, and the Comptroller General is instructed to determine whether ERISA requirements are being followed.

Subtitle C—Lifetime Income

Sec. 221. Lifetime income disclosure. Another amendment to ERISA which isn’t sensible without reference to ERISA but is either an option to or a requirement to disclose to (401k?) particants a disclosure of estimated lifetime income, as well as protection from liability arising from providing this lifetime income information.

Sec. 222. Lifetime income safe harbor. Employers are required to ensure that annuities offered through their 401k plans are provided by financially sound insurers, and at reasonable cost. The “safe harbor” defines a process which, if followed, allows the employer to have met this requirement.

Sec. 223. Default investment safe harbor clarification. Another ERISA amendment which isn’t immediately clear.

Sec. 224. Administration of joint and survivor annuity requirements. And another ERISA amendment which isn’t immediately clear.

TITLE III—DEFINED BENEFIT SYSTEM REFORMS

Subtitle A—Defined Benefit Pension Plan Reforms

Sec. 301. Hybrid plans. I’m getting tired of this. More ERISA amendments, now defining interest crediting rates for cash balance-type pension plans.

Sec. 302. Clarification of the normal retirement age. Definitions of a pension plan’s “normal retirement age” for specific cases.

Sec. 303. Moratorium on imposition of shutdown liability. “Shutdown liability” refers to payments in the context of a restructing of a penison plan provider, to the PBGC.

Sec. 304. Alternative funding target attainment percentage determined without regard to reduction for credit balances. Modifications to pension funding requirements.

Sec. 305. Method for determining changes for quarterly contributions. More pension funding modifications.

Sec. 306. Election to discount contributions from final due date. More pension funding modifications.

Sec. 307. Simplification of elections and notices. And more pension funding modifications.

Sec. 308. Improved multiemployer plan disclosure. And still more pension funding modifications.

Subtitle B— Improvements to the Pension Insurance Program

This is really going on forever. Which is interesting. This bill is a mix of establishing legislation for the USARFs, a wholly new type of plan, along with a requirement that employers make this available, along with a catch-all assortement of pension regulatory clean-up, none of which really seems controversial. It seems to almost imply that the first part is easily-enough passed, meaning that you might as well add the related clean-up. Anyway, the remaining sections are listed below without comment.

Sec. 311. Modifications of technical changes made by the Pension Protection Act of 2006 to termination liability.

Sec. 312. Payment of lump sum distributions in bankruptcy.

Sec. 313. Trusteeship clarifications.

Sec. 314. Recordkeeping for terminating plans.

Sec. 315. Termination date in bankruptcy.

TITLE IV—OTHER SYSTEMIC REFORMS

Sec. 401. Plan audit quality improvement.

Sec. 402. Special rules relating to treatment of qualified domestic relations orders.

Sec. 403. Correction to bonding requirement.

Sec. 404. Retaliation protections.