Vice President, Retirement Policy, U.S. Chamber of Commerce
June 02, 2022
Dear Chair Murray and Ranking Member Burr:
The U.S. Chamber of Commerce (Chamber) supports your bipartisan efforts on the draft release of the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (Draft Bill). The Draft Bill is a crucial step forward in finalizing retirement legislation during this session. Our comments to the Draft Bill are attached, and we look forward to working with the Committee as this legislation progresses.
Vice President, Retirement Policy
U.S. Chamber of Commerce
U.S. Chamber of Commerce Comments on the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act
Sec. 106. Review and report to congress relating to reporting and disclosure requirements.
We applaud this provision, because many of the current disclosure requirements are outdated and do not address governmental or participant needs. However, we suggest that the Committee clarify what it means by the rate at which participants are receiving disclosures. Participants should be receiving these as required under ERISA and the Code. If the information being sought is the extent to which participants are not actually receiving such notices, any final legislation should say so. In addition, the Committee should clarify what they intend by how participants are accessing information. If the Committee intends for the Secretaries to include in the report the media by which participants are accessing information, such as paper, email, web-based or app based, it should be clarified.
Sec. 107. Eliminating unnecessary plan requirements related to unenrolled participants.
The Draft Bill also lists what must be in the annual notice, including the key benefits and rights under the plan, with a focus on employer contributions and vesting provisions. We suggest revising this to list what items must be in the notices, because it is unclear what are the key benefits and rights. For example, final legislation could state the notice must include the amount of allowable elective deferrals, any match or employer contribution, and a description of how vesting works.
Sec. 108. Recovery of retirement plan overpayments.
We support the premise of this provision, which is to clarify that a fiduciary is not always required to seek recoupment, but may when appropriate. However, the Draft Bill is so overly complicated that it would preclude most plan sponsors from utilizing it. For example, the eight conditions imposed on plans that seek recoupment are so onerous that they effectively would preclude plans from seeking recoupments. Furthermore, even were a plan to utilize this, because of the amorphous nature of some of the requirements, a plan would be opening itself up to litigation with assertions that the requirements were not met. We suggest deleting the new ERISA paragraph 204(h)(4). Alternatively, we suggest the following modifications:
· A plan should be allowed to charge reasonable interest.
· Recovery through future benefit reductions is capped at 10% of the benefit amount. We propose this amount should be higher (at least 20%).
· A plan should be able to use a collection agency or other third party. The language
regarding “threats of litigation” in (h)(4)(D) should be deleted and instead replaced by the following: “In its efforts to seek recoupment, a plan may inform a participant or beneficiary that the plan may seek to enforce its rights in court. The Secretary shall issue model language that a plan may use.” Similar language should replace the last sentence in (h)(5) with respect to Rule 11.
· This section precludes recovery for errors not found within three years. This restriction should be eliminated. If a limitation must be imposed, it should be a six-year limitation, analogous to the maximum six-year statute of limitations for breach of fiduciary duty claims.
· Section 206(4)(F) appears to prohibit ANY recoupment if the first overpayment was made more than three years before the notice was provided. As written, it would appear that if the plan did not catch an overpayment within three years, the plan could not seek any recoupment, even for payments within three years of the notice. If a limitation is retained (see preceding bullet point), this section should be rewritten to allow for recoupment of, at the least, payments made during the limitation period (e.g., within six years preceding notice of overpayment).
Paragraph (5) provides that the protections in subparagraphs (A) through (F) of paragraph (4) do not apply to a participant or beneficiary who is culpable, which is if the individual “bears responsibility for the overpayment (such as through misrepresentations or omissions that led to the overpayment), or if the individual knew, or had good reason to know under the circumstances, that the benefit payment or payments were materially in excess of the correct amount.” If paragraph (4) is deleted, this should be as well. Alternatively, given how difficult it would be to prove culpability, it is likely that no plan would invoke this because doing so would lead to additional litigation over whether someone were culpable.
Many plans currently have overpayment provisions. As such, plan sponsors and fiduciaries will need time to review any final legislation related to plan overpayment and modify their procedures. We recommend that any provisions related to plan overpayments are not effective until the first day of the plan year that is 12 months after the date of enactment.
Section 109: Improving coverage for part-time workers
In addition to reducing the SECURE Act’s 3-year period to two years, Section 109 also extends the rules to 403(b) plans that are subject to ERISA by making the requirement applicable to “a salary reduction agreement (as described in section 403(b) of such Code).” This extension to 403(b) plans is new, as 403(b) plans were not referenced in Section 112 of the SECURE Act. The extension to 403(b) plans is unwarranted because a more stringent immediate participation requirement is already imposed on all sponsors of 403(b) plans, whether or not the plan is subject to ERISA. Specifically, Section 403(b)(12) requires a section 403(b) contract that provides for elective deferrals to make elective deferrals available to all employees (the universal availability rule) and provides consequences for failing to satisfy this nondiscrimination requirement. Under the universal availability rule, all employees of the eligible employer must be permitted to elect to have section 403(b) elective deferrals contributed on their behalf if any employee of the eligible employer may elect to have the organization make section 403(b) elective deferrals, with certain limited exceptions as further described in §1.403(b)-5.
Regarding changes to the vesting rules, it is unclear whether the Draft Bill would make the vesting requirements applicable to 403(b) plans, as it refers only to “a salary reduction agreement under a plan.” If applicable to all 403(b) plans, this change would be challenging for many tax-exempt organizations to implement because it would impose a different definition of “year of service” solely for vesting purposes, although the 403(b) regulations already provide the required definition of a year of service for all 403(b) purposes. Under 26 C.F.R. Section 1.403(b)-2, a “year of service” is defined as each full year during which an individual is a full- time employee of an eligible employer, plus fractional credit for each part of a year during which the individual is either a full-time employee of an eligible employer for a part of the year or a part-time employee of an eligible employer. The rules for determining years of service provided under 26 C.F.R. Section §1.403(b)-4(e) were carefully crafted to reflect the unique circumstances of plan sponsors eligible to offer 403(b) plans, such as a school’s academic year as the basis for determining a year of service.
Sec. 202. Emergency savings accounts linked to defined contribution plans.
The Chamber supports this section because it provides plan sponsors one more tool to assist their employees in building emergency and retirement savings. We also are supportive of other efforts to provide emergency savings tools, such as the S.1870 - Enhancing Emergency and Retirement Savings Act of 2021 and current programs, such as using after-tax contributions to build emergency savings.
To alleviate concerns that these accounts could be used for purposes other than emergency savings, the Committee may want to consider providing parameters around what would be an emergency. The Committee also may want to consider putting a limit on the number of withdrawals allowed per month. Finally, there should be a waiting period before an employee can withdraw employer matching contributions (such as three to six months) to avoid an employee making a contribution solely to receive the match then immediately withdrawing both.
We also have a few administrative suggestions. First, auto enrollment will create some challenges if an employer currently allows it for pre-tax and/or Roth contributions to the retirement plan. The question then becomes whether to deduct the emergency savings account money first or the pre-tax and/or Roth contributions. It may be better to require affirmative consent for emergency savings account contributions.
Secondly, we suggest removing the language that would allow individuals to pause their contribution. We appreciate that individuals may need to stop and start contributions throughout the year. However, some systems may not be able to accommodate a pause rather than and full stop with the ability to start contributions at a later date.
Finally, the plan administrator must also provide an annual notice. The Draft Bill includes a list of items that must be included in the notice, including the amount the participant and employer contributed for the plan year. We suggest deleting that because it is unnecessary in the annual notice. This information is readily available to the account holder at any time and by the time the notice is provided it likely will be out of date.
Sec. 301. Defined contribution plan fee disclosure improvements.
This section provides that no later than three years after date of enactment, the Secretary of Labor must review 29 CFR Section 2550.404a-5 (fee disclosure regulations). This section also mandates that the Secretary explore how the content and design may be improved to enhance participants’ understanding of fees and expenses and the cumulative effect of such fees and expenses. We suggest also requiring the Secretary to explore modes of delivery, including electronic delivery and how layering information electronically enhances understanding.
Sec. 303. Information needed for financial options risk mitigation act.
We believe this requirement is unnecessary because plans currently provide explanations to participants before offering a lump sum window. Instead of requiring disclosure, Congress should instead look at the reasons that plans are offering such windows, such as reducing their substantial PBGC premium liability.
If this section is not deleted, we suggest the following changes. First, the Draft Bill proposes that the disclosure be provided: “(1) to each participant or beneficiary offered such lump sum amount, in the manner in which the participant and beneficiary receives the lump sum offer from the plan sponsor, not later than 90 days prior to the first day on which the participant or beneficiary may make an election with respect to such lump sum”.
Under the current notice regime, plans provide the notices later, based on the annuity starting date. So, this proposal would result in plans providing two very redundant notices. We suggest the proposal be modified to require notices to be provided “not later than 90 days prior to the annuity starting date.” This latter approach is consistent with current law, avoids redundant notices, and ensures that participants get at least 90 days advance notice before benefits can begin.
The Draft Bill requires the notice to include: “Whether it would be reasonably likely to replicate the plan’s stream of payments by purchasing a comparable retail annuity using the lump sum.” It would be very difficult to do comprehensive searches of all annuity prices, which can change daily and can be dependent on annuity features that may not match up perfectly with plan features. We suggest that this requirement be deleted, and, instead, replaced with “the possibility that a commercial annuity comparable to the annuity available from the plan may cost more than the amount of the lump sum amount but it also may contain additional features and the advisability of consulting an advisor regarding this point if the participant or beneficiary is considering purchasing a commercial annuity.”
The notice also would be required to include the ramifications of accepting the lump sum, including longevity risks, loss of protections guaranteed by the PBGC, with an explanation of the monthly benefit amount that would be protected by the PBGC if the plan is terminated with insufficient assets to pay benefits, loss of protection from creditors, loss of spousal protections and other ERISA protections. We suggest deleting the requirement to provide an explanation of the loss protections guaranteed by the PBGC and an explanation of the monthly benefit amount that would be protected by the PBGC if the plan is terminated. First, as a practical matter, because the lump sum represents the full benefit amount, from a practical aspect, no PBGC protection is lost. Secondly, the amount PBGC guarantees is age dependent, and it would be administratively burdensome to provide such individualized information. Instead, the statement that the benefit being cashed out would have been partially or completely guaranteed by the PBGC protection would be sufficient. We also suggest deleting “other ERISA protections,” because it is overly broad.
The Draft Bill would require that, not later than 90 days after the end of the limited period during which the offers may be accepted, the plan sponsor must provide the Secretary and PBGC with a report, including the number of individuals who accepted the offer and “such other information the Secretary may require.” We suggest deleting the quoted language, because it is too open-ended. If the Committee believes there is additional information the Agencies need, it should be spelled out in final legislation.
The Draft Bill provides that the information provided to the Secretary in both notices must be made publicly available. This section should be deleted. There is no reason that this personal information should be made available to the public.
Sec. 304. Defined benefit annual funding notices.
This section significantly revises the current defined benefit notice. This provision should be deleted because it does not add to participants’ current understanding of a plans’ funding status, but it will add complexity to compiling the notice. It is also at odds with provisions in the Draft Bill that call for streamlining the ERISA and Code notice and disclosure provisions.
About the authors
Vice President, Retirement Policy, U.S. Chamber of Commerce