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401(k) Reform Legislation Deadlocked


Two competing bills in the House and the Senate that would reform 401(k) plans to protect investors in the wake of the Enron bankruptcy appear to have polarized legislators. The two biggest points of contention are whether 401(k) investors should be allowed to own company stock and whether mutual fund companies in a plan are capable of providing objective investment advice.

Rep. John Boehner (R-Ohio) blasted Democrats in the Senate late last month for their failure to pass a bill that would reform 401(k) rules. Speaking before a meeting of the International Foundation of Employee Benefit Plans of Brookfield, Wis., Boehner said that the House had "responded quickly" to the call for reform after Enron, a Houston energy trader, declared bankruptcy last year, draining the 401(k) plans of many of its workers

"Instead of supporting bipartisan legislation that will provide new protections to millions of U.S. workers, the Democrat leadership of the Senate has chosen to put political interests ahead of the needs of working Americans," Boehner told the group. "Senate Majority Leader Tom Daschle hasn't even been willing to answer questions about when the Senate will follow the House's lead in passing legislation that will protect workers against future Enrons," Boehner said.

The House approved President Bush's proposal for new 401(k) rules in April and sent it to the Senate. But the bill has yet to be acted upon. And Sen. Ted Kennedy (D-Mass) has proposed rival legislation aimed at reforming 401(k)s as well.

"I think it is stalled,"Lowell Smith, a retirement plan consultant based in Pittsburgh, said of the prospect for reform. "The Senate won't pass the House's version. And the House has problems with the Kennedy bill."

Boehner's Pension Security Act includes the White House's recommendations as well as a controversial proposal that would allow fund companies to provide 401(k) investors with advice. President Bush's proposal states that employers have a fiduciary responsibility for the stability of employees' 401(k)s during so-called "blackout periods" when plans cannot be altered because they are in the process of changing administrators. It also stipulates that senior corporate executives cannot sell their company stock during such periods. And it allows employees to sell their company stock after they have participated in their 401(k) plan for three years.

The other bill, Kennedy's Protecting America's Pensions Act, would preclude companies from both offering employees a match of company stock in their 401(k)s and from allowing them to buy their own company stock. It was recently approved on the committee level and has yet to be reviewed by the full Senate.

Responding to Boehner's allegations that the Democratic leadership has not acted quickly enough, Kennedy's press secretary, Jim Manley, said, "What the House [passed] is a weak, watered-down version of what needs to be done. Unfortunately, the rules of the Senate are such that the Republicans can slow down and delay the debate on this bill."

"A couple of months ago we thought we would be able to work on a bipartisan basis, but it became evident that that was not going to happen," Manley continued. "The Republicans decided to make it a partisan debate and they refused to support these common-sense reforms." Manley said the issue won't likely be brought before the full Senate until June.

Kevin Smith, an aid working in Boehner's office, described the prospect of the Senate passing 401(k) reform as "a big if."

"We really haven't heard much," he said. "Sen. Daschle has obviously been very quiet. I would say it's stalled at the door of Mr. Daschle. If something's going to happen, he's going to have to make it happen, and so far we haven't seen that."

Daschle's office did not return calls at press time.

Smith, the Pittsburgh-based consultant, said that the deadlock is rooted in the Senate's skepticism over Boehner's provision that would relax current restrictions on fund companies from providing investment advice to 401(k) investors. Some, including the AARP, based in Washington D.C., have opposed that provision because they say it would allow fund companies to steer investors toward funds that yield higher fees.

The House, meanwhile, is skeptical of the Kennedy bill, said Smith of Boehner's office, particularly with regards to a provision in it that would require companies of 100 employees or more to include workers on their retirement plan advisory boards. Kennedy was trying to give workers some influence on issues regarding their company stock, Smith said, but it's a moot point for smaller companies since "companies with 100 employees don't have company stock," he said

Smith wonders if Congress will manage to pass any kind of reform before the fall. And he wonders if the two sides might be stalling in an effort to stockpile political ammunition for the November Congressional elections. If the two sides reach a bipartisan solution before November, according to Smith's logic, they lose an opportunity to blame the opposition for lack of progress.

"Originally, my thought was that the legislation was going to pass very quickly," Smith said. But "if they join together and they both agree, they don't have a campaign point on this."