ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS

Thomas Announces a Hearing on Retirement Security and Defined Contribution Plans

Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways and Means, today announced that the Committee will hold a hearing on retirement security and defined contribution plans. The hearing will take place on Tuesday, February 26, 2002, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 2:00 p.m.

Oral testimony will be heard from invited witnesses only. Any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee or for inclusion in the printed record of the hearing.

BACKGROUND:

Private pension plans are an important component of retirement savings. In 1997 (the most recent year for which the U.S. Department of Labor data is available), 71 million workers actively participated in more than 720,000 pension plans. Assets held by private pension plans totaled $3.6 trillion in 1997. In general, private pension plans fall under two broad categories: defined benefit (DB) plans and defined contribution (DC) plans.

The DB plans provide participants with a guaranteed retirement benefit that is typically tied to the employee's earnings and/or length of service. Generally, employers are responsible for making contributions to the plan that are actuarially sufficient to fund promised benefits. The employer (or a chosen fiduciary) is responsible for directing plan investments and bears the risk of such investments. To ensure a certain level of solvency within DB plans, the Internal Revenue Code (IRC) sets forth certain minimum funding requirements that must be met on an ongoing basis. Most private-sector DB plans must pay premiums to the Pension Benefit Guaranty Corporation (PBGC) to insure the risk of plan termination without sufficient assets to pay benefits under the plan. The PBGC is required to pay a minimum guaranteed benefit to each plan participant in the case of such termination.

Under a DC plan, individual accounts are established for each participating employee. Accounts are funded with employer contributions, employee contributions, or both. A DC plan may be designed to allow participants to direct the investment of their account balances. Alternatively, the plan design may require that employer contributions be invested in employer assets or securities. Yet another design will require the plan sponsor (or an appointed investment manager) to direct the investment of all the plan assets. Retirement benefits under a DC plan are based on the individual's total account balance at retirement. In general, the minimum funding rules set forth in the IRC are not applicable to DC plans because DC plans are, by definition, fully funded through employer and/or employee contributions. Similarly, DC plans are not insured by the PBGC because there is no risk of termination with insufficient assets.

The past 20 years has seen a significant growth in DC plans. In 1977, 15 million individuals participated in 281,000 DC plans with $91 billion of total assets. By 1997, 55 million individuals participated in 661,000 plans with $1.8 trillion in assets. In 1997, about 54 percent of covered employees were covered only by a DC plan, 14 percent were covered only by a DB plan, and 32 percent were covered by both a DC and a DB plan.

The shift from DB plans to DC plans has provided many advantages for both employees and employers. However, the trend has also shifted some measure of the responsibility for financing retirement benefits from the employer to the employee. As a result, it is necessary that we examine the rules and regulations that currently govern DC plans as well as the existing protections for workers who participate in these plans.

In announcing the hearing, Chairman Thomas stated: "401(k) plans and other defined contribution pension plans have provided workers with important advantages, including the opportunity for increased retirement income and more portability -- a feature that is particularly important for today's mobile workforce. However, defined contribution plans also shift more risk and responsibility to the employee. As defined contribution plans become more and more popular, we need to evaluate the laws that govern them to ensure we are maximizing retirement security while minimizing undue regulatory burdens that may discourage employers from offering these plans."

FOCUS OF THE HEARING:

The hearing will examine the rules and regulations that currently govern private DC pension plans. Specific issues to be discussed include rules regarding diversification of plan assets, restrictions placed on plan assets under the terms of the plan, standards for investment education and advice, and notice and reporting requirements. The hearing will also examine existing protections for plan participants, including fiduciary rules and applicable penalties for fraud and/or breach of the fiduciary rules. Witnesses will also discuss regulatory burdens associated with sponsoring certain retirement plans as well as the other challenges faced by employers who offer (or seek to offer) pension plans.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Please Note: Due to the change in House mail policy, any person or organization wishing to submit a written statement for the printed record of the hearing should send it electronically to "hearingclerks.waysandmeans@mail.house.gov", along with a fax copy to 202/225-2610 by the close of business, Tuesday, March 12, 2002. Those filing written statements who wish to have their statements distributed to the press and interested public at the hearing should deliver their 300 copies to the full Committee in room 1102 Longworth House Office Building, in an open and searchable package 48 hours before the hearing. The U.S. Capitol Police will refuse unopened and unsearchable deliveries to all House Office Buildings.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.

1. Due to the change in House mail policy, all statements and any accompanying exhibits for printing must be submitted electronically to "hearingclerks.waysandmeans@mail.house.gov", along with a fax copy to 202/225-2610, in Word Perfect or MS Word format and MUST NOT exceed a total of 10 pages including attachments. Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.

3. Any statements must include a list of all clients, persons, or organizations on whose behalf the witness appears. A supplemental sheet must accompany each statement listing the name, company, address, telephone and fax numbers of each witness.

Note: All Committee advisories and news releases are available on the World Wide Web at http://waysandmeans.house.gov.

The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.