Title II — Defined contribution plan reforms

S. 1979 · 113th Congress · Jan 30, 2014 · Lineage

II Defined contribution plan reforms

A Savings enhancements

Sec. 201 Pooled employer plans

(a)

No common interest required for pooled employer plans— Section 3(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(2)) is amended by adding at the end the following:

“(C) A pooled employer plan shall be treated as a single employee pension benefit plan or single pension plan without regard to whether the participating employers share a common interest other than participation in the plan.”

(b)

Pooled employer plan and provider defined— Section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) is amended by adding at the end the following:

“(43)

“(A) The term pooled employer plan means a pension plan (without regard to whether any participating employers share a common interest other than participation in the plan) that is a single individual account plan established or maintained for the purpose of providing benefits to the employees of 2 or more employers but only if—

“(i) the terms of the plan designate a pooled plan provider,

“(ii) under the plan each participating employer retains fiduciary responsibility for—

“(I) the prudent selection and monitoring of the person designated as the pooled employer plan provider and, if different from the provider, the person designated as the plan’s named fiduciary, and

“(II) to the extent not otherwise delegated to another fiduciary, the investment and management of that portion of the plan’s assets attributable to the employees of that participating employer,

“(iii) under the plan a participating employer is not subject to unreasonable restrictions, fees, or penalties with regard to ceasing participation or otherwise transferring assets of the plan in accordance with section 414(l) of the Internal Revenue Code of 1986, and

“(iv) the pooled employer plan provider provides to participating employers any disclosures or other information as the Secretary may require.

“(B) The term pooled employer plan does not include—

“(i) a multiemployer plan, or

“(ii) a plan established before January 1, 2014, or any successor thereof.

“(44)

“(A) The term pooled plan provider means a person who—

“(i) is designated by the terms of a pooled employer plan as a pooled plan provider;

“(ii) registers as a pooled plan provider with the Secretary and provides such other identifying information to the Secretary as the Secretary may require; and

“(iii) has such educational or professional qualifications as the Secretary may require.

“(B) The Secretary may perform examinations and investigations of pooled plan providers as may be necessary to enforce and carry out the purposes of the Act.

“(C) For purposes of this section, the following shall be treated as a single pooled plan provider:

“(i) All corporations that provide services to a plan and are members of a controlled group of corporations within the meaning of section 1563(a) of the Internal Revenue Code of 1986 (determined without regard to subsection (a)(4) of such section 1563).

“(ii) All persons treated as a single employer under section 210(d).”

(c)

Technical amendment— Section 3 of such Act is amended by striking the second paragraph (41).

Sec. 202 Pooled employer and multiple employer plan reporting

(a)

Additional information— Section 103 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1023) is amended—

(1)

in subsection (a)(1)(B), by striking “applicable subsections (d), (e), and (f)” and inserting “applicable subsections (d), (e), (f), and (g)”; and

(2)

by adding at the end the following:

“(g) Additional information with respect to pooled employer and multiple employer plans—An annual report under this section for a plan year shall include—

“(1) with respect to any pooled employer plan or other pension plan maintained by more than one employer (other than a multiemployer plan), a list of participating employers and a good faith estimate of the percentage of the total contributions made, or expected to be made, by each such participating employer for the plan year, and

“(2) with respect to a pooled employer plan, the identifying information for the person designated under the terms of the plan as the pooled plan provider.”

(b)

Simplified annual reports— Section 104(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1024(a)) is amended by striking paragraph (2)(A) and inserting the following:

“(2)

“(A) With respect to annual reports required to be filed with the Secretary under this part, the Secretary may by regulation prescribe simplified annual reports for any pension plan that—

“(i) covers fewer than 100 participants, or

“(ii) is a pooled employer plan (as defined in section 3(43)) that covers fewer than 1,000 participants but only if no single participating employer has more than 100 participants covered by the plan.”

(c)

Effective date— The amendments made by this section shall apply to annual reports for plan years beginning after December 31, 2014.

B Participant Protections

Sec. 211 Alternative fiduciary arrangements to protect plan participants

Section 405 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1105) is amended by adding at the end the following:

“(e) Small employer plan alternative fiduciary arrangements

“(1) In general—A small employer that is a plan sponsor of an employee pension benefit plan shall not be liable for a breach of fiduciary responsibility of a small employer plan service provider with respect to the same plan if the requirements of the following subparagraphs are met:

“(A) Small employer plan sponsor requirements—The requirements of this subparagraph are met if the small employer prudently selects and monitors the small employer plan named fiduciary.

“(B) Small employer plan named fiduciary requirements—The requirements of this subparagraph are met if the small employer plan named fiduciary—

“(i) engages a small employer plan service provider with respect to the employee pension benefit plan;

“(ii) registers as a small employer plan named fiduciary with the Secretary in accordance with paragraph (2)(A);

“(iii) has such educational or professional qualifications as the Secretary may require;

“(iv) provides to employers disclosures or other information as may be required by the Secretary by regulations to facilitate monitoring of the named fiduciary;

“(v) is bonded in accordance with section 412; and

“(vi) meets the financial responsibility requirements of paragraph (2)(B).

“(2) Rules relating to named fiduciary requirements

“(A) Reporting by small employer plan named fiduciary—For purposes of paragraph (1)(B)(ii), the small employer plan named fiduciary shall file the required registration with the Secretary—

“(i) before the date upon which the safe harbor provided in this subsection first applies to a small employer plan sponsor and at such other times as the Secretary may prescribe by regulations, and

“(ii) in such form and manner, and containing such information, as the Secretary determines necessary or appropriate to carry out the purposes of this Act.

“(B) Financial responsibility requirements—For purposes of paragraph (1)(B)(vi), a small employer plan named fiduciary shall meet the requirements of this subparagraph if the fiduciary either—

“(i) has fiduciary liability insurance with a per-claim limit equal to no less than—

“(I) the greater of 5 percent of plan assets or $1,000,000; or

“(II) such other amount as is determined by the Secretary by regulation; or

“(ii) is—

“(I) a bank, as defined in section 202(a)(2) of the Investment Advisers Act of 1940, that has the power to manage, acquire, or dispose of assets of a plan, and that has, as of the last day of its most recent fiscal year, equity capital in excess of $1,000,000;

“(II) a savings and loan association, the accounts of which are insured by the Federal Savings and Loan Insurance Corporation, that has made application for and been granted trust powers to manage, acquire, or dispose of assets of a plan by a State or Federal authority having supervision over savings and loan associations, and that has, as of the last day of its most recent fiscal year, equity capital or net worth in excess of $1,000,000;

“(III) an insurance company that is subject to supervision and examination by a State authority having supervision over insurance companies, that is qualified under the laws of more than one State to manage, acquire, or dispose of assets of a plan, and that has, as of the last day of its most recent fiscal year, net worth in excess of $1,000,000; or

“(IV) an investment adviser registered under the Investment Advisers Act of 1940 that, as of the last day of its most recent fiscal year, has total client assets under its management and control in excess of $85,000,000 and shareholders' or partners' equity in excess of $1,000,000.

“(C) Adjustment of amounts—The Secretary may by regulation adjust the dollar amounts under subparagraph (B)(ii).

“(3) Administrative summary cease and desist orders and summary seizure orders against small employer plan named fiduciary

“(A) In general—The Secretary may issue an ex parte cease and desist order under this title if the Secretary—

“(i) determines that a small plan named fiduciary or small employer plan service provider has not met the requirements under paragraph (1) or (2); or

“(ii) has reasonable cause to believe that the named fiduciary or service provider has engaged in or is about to engage in conduct that is a violation of this title or that the Secretary determines to be contrary to accepted standards of plan operations that might result in abnormal risk to the plan or participants and beneficiaries of the plan.

“(B) Hearings

“(i) In general—A person that is adversely affected by the issuance of a cease and desist order under subparagraph (A) may request a hearing by the Secretary regarding such order.

“(ii) Confidentiality—The Secretary may require that a hearing under this subparagraph, including all related information and evidence, be conducted in a confidential manner.

“(iii) Burden of proof—The burden of proof in any hearing conducted under this subparagraph shall be on the party requesting the hearing to show cause why the cease and desist order should be set aside.

“(iv) Determination—Based upon the evidence presented at a hearing under this subparagraph, the Secretary may affirm, modify, or set aside the cease and desist order, in whole or in part.

“(C) Seizure—The Secretary may issue a summary seizure order under this subtitle if the Secretary determines that a small employer plan named fiduciary or small employer plan service provider is in a financially hazardous condition.

“(D) Regulations—The Secretary may promulgate such regulations or other guidance as may be necessary or appropriate to carry out this paragraph.

“(E) Exception—This paragraph shall not apply to any named fiduciary that is not a named fiduciary under paragraph (1)(A) or small employer plan service provider under paragraph (1)(B)(i).

“(F) Savings clause—The Secretary’s authority under this paragraph shall not be construed to limit the Secretary’s ability to exercise enforcement or investigatory authority under any other provision of this title. The Secretary may, in the sole discretion of the Secretary, initiate court proceedings without using the procedures in this paragraph.

“(4) Definitions—For purposes of this subsection—

“(A) Small employer

“(i) In general—The term small employer means, with respect to any year, an employer that did not have more than 50 employees on any day during the preceding year.

“(ii) 2-Year grace period—A small employer that establishes and maintains an employee pension benefit plan for 1 or more years and that is not a small employer for any subsequent year shall be treated as a small employer for the 2 years following the last year the employer was a small employer. If such employer is not a small employer as described in the preceding sentence on account of an acquisition, disposition, or similar transaction involving a small employer, the preceding sentence shall not apply.

“(B) Small employer plan named fiduciary—The term small employer plan named fiduciary means the fiduciary that is designated as the small employer plan named fiduciary in the instrument under which an employee pension benefit plan is maintained.

“(C) Small employer plan service provider—The term small employer plan service provider means—

“(i) an administrator (as defined in section 3(16)(A));

“(ii) a fiduciary (as defined in section 3(21)(A)); or

“(iii) an investment manager (as defined in section 3(38)),”

Sec. 212 Rollover protections

(a)

Sense of congress— It is the sense of Congress that a person may be providing investment advice within the meaning of section 3(21) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(21)) when such person advises a plan participant to take a permissible plan distribution and such distribution advice is combined with a recommendation as to how the distribution should be invested.

(b)

Guidance— Not later than 90 days after the date of enactment of this Act, the Secretary of Labor shall issue guidance consistent with subsection (a) clarifying the applicability of section 3(21) of the Employee Retirement Income Security Act of 1974 to investment advice provided in connection with distribution recommendations.

(c)

Fiduciary and prohibited transaction awareness— The Comptroller General of the United States shall study the extent to which advisors, broker-dealers, and other financial professionals dealing with individual and employer-provided retirement plans are aware of, and receive ongoing training regarding, the requirements of part 4 of subtitle B of title I of the Employee Retirement Income Security Act (29 U.S.C. 1101 et seq.) and section 4975 of the Internal Revenue Code of 1986. The Comptroller General shall submit a report to the Committee on Health, Education, Labor, and Pensions of the Senate and the Committee on Education and the Workforce of the House of Representatives summarizing its findings and including recommendations regarding ways to improve awareness of and compliance with the fiduciary and prohibited transaction rules.

C Lifetime income

Sec. 221 Lifetime income disclosure

(a)

Requirements To provide pension benefit statements— Section 105(a)(2)(B) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025(a)(2)(B)) is amended—

(1)

in clause (i), by striking “and” at the end;

(2)

in clause (ii), by striking the period at the end and inserting “, and”; and

(3)

by adding at the end the following:

“(iii) an illustration of the participant’s benefit as an estimated lifetime income stream beginning at retirement determined in accordance with assumptions and requirements established by regulation.”

(b)

Limitation on liability— Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104), as amended by section 105, is amended by adding at the end the following:

“(f) Limitation on liability—No plan fiduciary, plan sponsor, or other person shall have any liability under this title solely by reason of providing an illustration as required under section 105(a)(2)(B)(iii).”

(c)

Regulations— Not later than 1 year after the date of the enactment of this Act, the Secretary of Labor shall issue regulations implementing the amendments made by subsections (a) and (b).

(d)

Clarification— The requirement under section 105(a)(2)(B)(iii) of the Employee Retirement Income Security Act of 1974, as added by subsection (a)(3), shall apply to pension benefit statements furnished more than 1 year after the issuance of the final rules implementing section 105(a)(2)(B)(iii) of such Act.

Sec. 222 Lifetime income safe harbor

Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104), as amended by sections 105 and 221(b), is amended by adding at the end the following:

“(g) Safe harbor for annuity selection

“(1) In general—With respect to the selection of a lifetime retirement income contract as part of an individual account plan, a fiduciary will be deemed to satisfy the requirements of subsection (a)(1)(B) with respect to the selection of an insurer and lifetime retirement income contract if the fiduciary engages in an objective, thorough, and analytical search for the purpose of identifying insurers from which to purchase lifetime retirement income contracts and appropriately concludes that—

“(A) at the time of the selection, the insurer is financially capable of satisfying its obligations under the lifetime income contract; and

“(B) the cost (including fees, surrender penalties, and commissions) of the selected lifetime retirement income contract is reasonable in relation to the benefits and product features of the contract and the administrative services to be provided under such contract.

“(2) Fiduciaries—A fiduciary meets the requirements of paragraph (1)(A) if the fiduciary meets all of the following conditions:

“(A) The fiduciary obtains written representations from the insurer that—

“(i) the insurer is licensed to offer lifetime retirement income contracts;

“(ii) the insurer, at the time of selection and for each of the immediately preceding 10 years—

“(I) operates under a certificate of authority from the Insurance Commissioner of its domiciliary state that has not been revoked or suspended;

“(II) has filed financial statements in accordance with the laws of its domiciliary state under applicable statutory accounting principles;

“(III) maintains reserves that satisfy all the statutory requirements of all States where the insurer does business; and

“(IV) is not operating under an order of supervision, rehabilitation, or liquidation;

“(iii) the insurer undergoes, at least every 5 years, a financial examination (within the meaning of the law of the State in which the insurer is domiciled) by the insurance commissioner of the domiciliary State (or any representative, designee, or other party approved thereby);

“(iv) if, following the issuance of the representations described in clauses (i) through (iii), there is any change that would preclude the insurer from making such representations at the time of issuance of the lifetime retirement income contract, the insurer will inform the fiduciary that the fiduciary can no longer rely on one or more of the representations; and

“(v) meet such other requirements specified by the Secretary by regulation.

“(B) The fiduciary has not received the notification described in clause (iv) of subparagraph (A) and has no other facts that would cause the fiduciary to question the representations described in clauses (i) through (iii) of subparagraph (A).

“(C) The fiduciary inquires about additional protections that might be available through a State guaranty association for the lifetime retirement income contract.

“(D) The fiduciary obtains evidence from the insurer that, not more than 1 year prior to the time of selection, the insurer has obtained written confirmation from the insurance commissioner of the domiciliary State of such insurer that, at the time the confirmation is issued, the insurer met the conditions of clauses (i) and (ii) of subparagraph (A).

“(3) Time of selection—For purposes of this subsection, the time of selection is—

“(A) the time that the insurer and contract are selected for distribution of benefits to a specific participant or beneficiary; or

“(B) the time that the insurer and contract are selected to provide benefits at future dates to participants or beneficiaries, but only if the selecting fiduciary periodically reviews the continuing appropriateness of the conclusion described in paragraph (1)(A).

“(4) Periodic review—For purposes of paragraph (3)(B), a fiduciary is not required to review the appropriateness of the conclusion under paragraph (1)(A) before or after the purchase of any contract for specific participants or beneficiaries. A fiduciary will be deemed to have conducted a periodic review of the financial capability of the insurer if the fiduciary obtains the written representations described in clauses (i) through (iii) of paragraph (2)(A) on an annual basis, unless, in the interim, the fiduciary becomes aware of facts that would cause the fiduciary to question such representations.

“(5) Definitions—For purposes of this subsection—

“(A) the term insurer means an insurance company, insurance service, or insurance organization qualified to do business in a State and includes affiliates of such companies to the extent the affiliate is licensed to offer lifetime retirement income contracts; and

“(B) the term lifetime retirement income contract means an annuity contract or a contract (or provision or feature thereof) that provides a participant fixed or variable benefits for a fixed term or the remainder of the life of the participant or the joint lives of the participant and the designated beneficiary of the participant.

“(6) Savings clause—Nothing in this subsection shall be construed to establish minimum requirements or the exclusive means for a fiduciary to satisfy the fiduciary duties under subsection (a)(1)(B). Nothing in this subsection shall be construed to require a fiduciary to select the lowest cost contract. A fiduciary may consider the value, including features and benefits of the contract and attributes of the insurer, in conjunction with the contract’s cost. Attributes of the insurer that may be considered may include, without limitation, the issuer’s financial strength.”

Sec. 223 Default investment safe harbor clarification

(a)

In general— Section 404(c)(5) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(c)(5)) is amended by adding at the end the following:

“(C) Availability of options—The availability of annuity purchase rights, death benefit guarantees, investment guarantees, or other features in insurance contracts will not, in and of themselves, affect the status of a fund, product, or portfolio as a default investment under this paragraph.”

(b)

Rules of construction— The amendment made by subsection (a) shall be construed to codify existing law and shall not be construed as modifying the regulations promulgated by the Secretary of Labor under section 404(c)(5) of Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(c)(5)), as in effect before the amendment made by this section.

Sec. 224 Administration of joint and survivor annuity requirements

(a)

Option To appoint annuity administrators— Section 402(c) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1102(c)) is amended—

(1)

in paragraph (2), by striking “or” at the end,

(2)

in paragraph (3), by striking the period at the end and inserting “; or”, and

(3)

by adding at the end the following new paragraph:

“(4) that a named fiduciary, or a fiduciary designated by a named fiduciary pursuant to a plan procedure described in section 405(c)(1), may appoint an annuity administrator or administrators with responsibility for administration of an individual account plan in accordance with the requirements of section 205 and payment of any annuity required thereunder.”

(b)

Liability of annuity administrator— Section 405 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1105), as amended by section 211(a), is amended by adding at the end the following:

“(f) Annuity Administrator—If 1 or more persons has been appointed under section 402(c)(4) as an annuity administrator or administrators of an individual account plan, and each such person acknowledges in writing that such person is the annuity administrator and a fiduciary under the plan with respect to appointed duties, neither the named fiduciary nor any appointing fiduciary shall be liable for any act or omission of the annuity administrator except to the extent that—

“(1) the named fiduciary or appointing fiduciary violated section 404(a)(1)—

“(A) with respect to such appointment; or

“(B) in continuing the appointment;

“(2) the named fiduciary or appointing fiduciary would otherwise be liable in accordance with subsection (a); or

“(3) the entity appointed to be the annuity administrator is not an insurance company or approved to be an annuity administrator by the Secretary.”