ERIC Offers Support for Chairman Tiberi’s Bill to Provide Relief from Nondiscrimination Testing for Frozen DB Plans

Urges Congress to Do No Harm in Considering Changes to Employer Retirement System

September 17, 2014

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ERIC News Release

For Immediate Release:  September 17, 2014

Washington, D.C. – In a statement submitted today to the House Ways and Means Subcommittee on Select Revenue Measures, the ERISA Industry Committee (ERIC) urged the subcommittee to protect and encourage the continuation of retirement plans by minimizing costs to maintain retirement plans, provide relief for frozen defined benefit plans, recognize the deferral nature of retirement savings, and critically evaluate proposals to change the system. 

ERIC submitted the statement for a hearing by the subcommittee on challenges facing employers, employees, and retirees who rely on defined benefit pension plans to help provide retirement security. 

ERIC’s statement explains that flexibility has been particularly crucial regarding the funding of defined benefit plans, particularly as companies may have varying levels of profitability over several years.  These plan sponsors need to be able to contribute more to their retirement plans when they are financially able and obtain relief during the years when it is needed.

“It is critical that the funding rules associated with defined benefit plans be reasonable, consistent and provide appropriate flexibility while maintaining high fiduciary standards and responsible financial commitments,” said Kathryn Ricard, ERIC Senior Vice President for Retirement Policy.  Ricard adds that, “Common-sense funding rules are imperative to address the pressures of changing economic conditions and the growing competition by international companies.”

To that end, ERIC backs legislation (H.R. 5381) introduced by Subcommittee Chairman Pat Tiberi (R-OH) to provide relief from ongoing nondiscrimination testing for frozen defined benefit plans.  “ERIC supports Congressman Tiberi’s bill and encourages Congress to pass legislation that supports the maintenance of frozen defined benefit plans,” Ricard said in noting that companies need help to enable them to maintain these plans. 

These arrangements can cause nondiscrimination testing problems over time when workers in the plan often typically become higher earners and no new lower paid workers are included in the plan for testing purposes, ERIC explains.  In many cases, the most workable solution is to remove some or all of the longer-serving employees from the defined benefit plan or completely freeze the plan, which can result in participants losing the most beneficial years of pension plan participation. Although the Treasury Department has issued temporary relief for defined benefit plans that provide ongoing accruals, the relief will apply only to a limited number of plans.    

Subcommittee Chairman Tiberi’s legislation would protect older, longer-serving participants by providing an exception to nondiscrimination testing and allowing frozen defined benefit plans to apply the nondiscrimination rules to the closed class of participants as of the freeze date and beyond. 

ERIC also recommends, among other things, that Congress refrain from further increasing the premiums that companies must pay to the Pension Benefit Guaranty Corporation for their defined benefit plans.  ERIC’s statement points out that plan sponsors already experienced two recent increases from legislation enacted in 2012 and 2013, and cites a study that ERIC and others funded showing that proposed additional increases would limit the ability of companies to invest, create jobs and grow the economy.  

Finally, ERIC urged the subcommittee to recognize the valuable benefits that private employer-sponsored retirement plans provide to millions of workers and their families, and to exercise substantial caution when considering any changes to the retirement system in order to avoid major unintended adverse consequences.     

To access ERIC’s statement, click on the link below. 

ERIC Statement for the Record

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For more information:

Ted Godbout
Director, Communications
The ERISA Industry Committee
1400 L Street, NW, Suite 350
Washington, DC 20005
Phone: 202-627-1918
tgodbout@eric.org
www.eric.org

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The ERISA Industry Committee (ERIC) is a non-profit association committed to representing the advancement of the employee retirement, health, and compensation plans of America's largest employers.  ERIC's members provide benchmark retirement, health care coverage, compensation, and other economic security benefits directly to tens of millions of active and retired workers and their families.  ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.