GAO found that government regulators lack sufficient and timely information on the financial health of multiemployer pension plans. For instance, plans are required to file annual financial reports with the IRS, Department of Labor, and the Pension Benefit Guaranty Corporation (PBGC). However, GAO discovered that all plans do not file with all agencies, agencies do not share information they do receive, and forms filed with Labor and PBGC use data that may be up to two years old.  

“As a result, federal officials told us that their agencies are limited in their ability to assess the current and recent health of multiemployer plans,” the GAO concluded.

Two out of three of multiemployer pension plans had funding liability issues in 2009, triple the percentage of plans a year before, the GAO also reported. While the GAO expects the financial health of some of the plans to recover when the economy improves, many plans will still face problems as the result of changing demographics in industries where these plans are common.  

The government watchdog group recommended that Congress consider the elimination of duplicative reporting requirements and establish a shared database among agencies. GAO also asked that PBGC, IRS and Department of Labor improve data collection and monitoring of multiemployer pension plans.

Multiemployer pension plans cover employees in industries with workers who change jobs frequently such as the construction, trucking, retail, food and mining. Rather than one company running a pension plan, in multiemployer plans, several companies band together in a particular industry to offer benefits to their workers. 

“Plan participants often face substantial hardship when employers fail to live up to their promises and terminate their pension plans.  It is critical that PBGC exercise due professional care in administering a terminated plan,” Miller said in a letter to Joshua Gotbaum, the new director of the pension agency. “I urge you to work with the OIG to determine the scope and severity of the problem and to properly hold accountable any contractor (including suspension of such contractor) or employee who failed to execute their duties in the manner consistent with the requirements of the law.”

The inspector general concluded that PBGC and a contractor performing the plan asset audits during the termination process did not exercise due professional care in the validation of plan assets, which may distort the plan’s health and how much pensioners receive.

In addition, the PBGC hired Integrated Management Resources Group, the contractor highlighted by the OIG for failing to exercise due diligence, to perform retiree plan audits despite allegations of contracting irregularities contained in a 2000 Government Accountability Office investigation.

PBGC Inspector General Letter to Rep. Miller

Rep. Miller 2009 Request to the Inspector General

Text of the letter to Director Gotbaum appears below.


July 23, 2010


VIA FACISIMILE (202) XXX-XXXX
Mr. Joshua Gotbaum
Director
Pension Benefit Guaranty Corporation
1200 K Street, NW
Washington, DC  20005-4026

Dear Mr. Gotbaum:

As you begin your effort to lead the Pension Benefit Guaranty Corporation (PBGC) in these economically challenging times, I write to urge your swift action to address troubling findings described in a letter I recently received from the Office of the Inspector General (OIG) of the PBGC.  

On December 14, 2009, I asked the OIG to review the design and implementation of PBGC’s protocols in relation to the United Airlines’ (UAL) pension plan terminations. As part of the review, the OIG looked at plan asset audits for four UAL plans.  As you know, the value of a plan’s assets at termination is crucial to accurately calculating the benefits to which plan participants are entitled.  

In the report, the OIG concluded that PBGC and the contractor performing the plan asset audits did not exercise due professional care and that “the issues surrounding the inadequate plan asset audits were so significant that additional, more detailed evaluation is warranted.”  Further, in discussions with my staff, the OIG indicated that the contractor PBGC hired to perform the UAL plan asset audits (Integrated Management Resources Group, Inc.) was the sole contractor to perform such audits for a number of years, despite past criticisms of its work.  

Plan participants often face substantial hardship when employers fail to live up to their promises and terminate their pension plans.  It is critical that PBGC exercise due professional care in administering a terminated plan.  I urge you to work with the OIG to determine the scope and severity of the problem and to properly hold accountable any contractor (including suspension of such contractor) or employee who failed to execute their duties in the manner consistent with the requirements of the law.

I respectfully request your prompt attention to this matter and that your staff keep me informed of your progress.  Please contact me or the Committee’s Senior Investigator, Ryan Holden, at (202) XXX-XXXX if you have any questions.

Sincerely,



GEORGE MILLER
Chairman

cc:        The Honorable John Kline
Senior Republican, Committee on Education and Labor

The Honorable Robert Andrews
Chairman, Subcommittee on Health, Employment, Labor, Pensions

The Honorable Tom Price
Ranking Member, Subcommittee on Health, Employment, Labor, Pensions

The Honorable Hilda Solis
Secretary, U.S. Department of Labor


Enclosure

“Americans should be outraged that there is no law that entitles them to know how much Wall Street takes out of their 401(k) account and what Wall Street does with that money,” said U.S. Rep. Rob Andrews (D-NJ), chairman of the Health, Employment Labor and Pensions Subcommittee.  “When an American puts a dollar in their retirement account, they don’t expect to get 72 cents back after a lifetime of saving. They expect that dollar to be invested and grow.”

Miller and Andrews were joined at a press conference by: Karen Friedman, policy director of the Pension Rights Center; Cristina Martin-Firvida, director of economic issues at AARP; and Christian E. Weller a senior fellow at the Center for American Progress and associate professor of public policy at the University of Massachusetts Boston.  

To watch a recording of the press conference, click here.

Below is the letter accompanying each pie:

Dear Senator:

There is currently no requirement that Wall Street tell accountholders how much they take out of Americans’ 401(k)-style accounts. With more than 50 million Americans relying on these plans to finance their retirements, hidden fees make a big difference in families’ retirement security.

The attached pie chart (which is delicious!) represents Americans’ 401(k) retirement savings. Yet, nearly a third of the pie is missing. This missing slice represents what Wall Street takes from many 401(k) accountholders in hidden and excessive fees.

A one-percentage point difference in fees over a lifetime of saving reduces some accounts by 28 percent, according to a Department of Labor calculation.

This is why the House of Representatives acted decisively in May to pass 401(k) fee disclosure protections as part of the American Jobs and Closing Tax Loopholes Act (H.R. 4213). However, last week, the Senate proposed to strike these vital protections from the bill at the expense of hard-working Americans.

These 401(k) fee disclosure provisions do not mandate the level of fees that 401(k) service providers may or may not charge. And, it does not add any cost to the bill. It simply requires disclosure of all fees plan participants and plan sponsors pay.

Americans 401(k) investments, which total approximately $3 trillion, belong to those who own the account, not Wall Street firms.  At a time when the middle class has already lost too much of their retirement savings because of the financial scandals, they shouldn’t also be losing out because of unconscionable hidden fees.

I urge you to stop Wall Street from hiding 401(k) fees by restoring the House disclosure provisions. The 50 million Americans with a 401(k)-style plan deserve a fighting chance to keep more of their retirement pie.

Sincerely,


GEORGE MILLER
Chairman

“It is unacceptable for the Senate to eliminate this key consumer protection for the 50 million Americans who have 401(k) plans. We are going to continue to fight to put back these key reforms in this bill,” said Miller. “Once again, this just shows how the heavy hand of Wall Street trumps the concerns of hardworking Americans. At a time when America’s middle class has already lost their retirement savings because of the financial scandals, they shouldn’t also be losing out because of excessive or hidden fees.”

The 401(k) fee disclosure provisions were part of the American Jobs and Closing Tax Loopholes Act (H.R. 4213), important legislation that the House of Representatives approved and sent to the Senate on May 28. Today, Sen. Max Baucus introduced proposed changes to the legislation that included the elimination of the requirement that 401(k)-type plans disclose all fees that participants pay.  

Federal law does not require the disclosure of fees taken out of workers’ 401(k)-style accounts. With more than 50 million Americans relying on these plans to finance their retirements, hidden fees can make a big difference in families’ retirement security. The Government Accountability Office found that a one-percentage point difference in fees could cut retirement assets by nearly 20 percent.

Provisions regarding fee disclosure were based on the 401(k) Fair Disclosure and Pension Security Act, which was authored by Miller and approved by the Education and Labor Committee last year.

Provisions included in H.R. 4213 regarding fee disclosure are based on the 401(k) Fair Disclosure and Pension Security Act, which was authored by Miller and approved by the Education and Labor Committee last year.

Federal law does not require the disclosure of fees taken out of workers’ 401(k)-style accounts. With more than 50 million Americans relying on these plans to finance their retirements, hidden fees can make a big difference in families’ retirement security. The Government Accountability Office found that a one-percentage point difference in fees could cut retirement assets by nearly 20 percent.

H.R. 4213 also includes provisions that would make modest adjustments to funding requirements of traditional pension plans so plan sponsors will not have to choose between freezing plans or cutting jobs.

“This bill will save jobs by providing pension plans the flexibility they need to continue their plans without freezing or defaulting,” said Miller. “All liabilities must still be paid, but plans will have more time to make up for the historic financial collapse.”

More information on the 401(k) and pension provisions in H.R. 4213

 “Today’s announcement is welcome news for the millions of Americans concerned about their retirement security. All too often, the worst performing products with the highest fees and best commissions for financial service firms have been pushed by Wall Street on our nation’s workers. We hope that this proposal will help to ensure that investment advice is based on what is best for a family’s long-term retirement security, not the investment advisor’s commissions.”
 
The Bush administration approved a last-minute regulation that allowed financial services firms to offer potentially conflicted investment advice on workers’ retirement accounts.

The 401(k) Fair Disclosure and Pension Security Act (H.R. 2989), approved by the committee last year, would help workers shop around for the best retirement investment options by providing information on how much in fees is taken from their retirement accounts. It would also have banned conflicted investment advice in the workplace. Current law does not require disclosure of certain fees, and even for fee information that is available, it can be difficult for workers to find and evaluate.

“In an especially difficult economy, a responsive Department of Labor is essential to assisting and standing up for workers,” said U.S. Rep. George Miller (D-CA), chairman of the House Education and Labor Committee. “Thanks to Secretary Solis, the Department of Labor is playing a central role in our nation’s economic recovery and laying the groundwork for a stronger middle class.”

More than seven million jobs have been cut over the past two years as the result of the financial collapse. From day one of the new Obama administration, Congress worked with the administration on a recovery plan to save the economy from total devastation. Economist from left to right agree that the Recovery Act added real growth to the economy and predicted that without these investments, more than a million more Americans would be out of work.

 “While I came to lead the Department of Labor at a tumultuous and challenging time, I know that we have already made a real difference in the lives of America’s workers and their families,” said Solis. “We successfully implemented the Recovery Act and have seen how these investments have saved and created jobs in communities across the country.”

The American Recovery and Reinvestment Act made historic investments in American workers and provided vital resources to families deal with the financial collapse. Among other things, the Department of Labor is responsible for administering increased unemployment benefits, health care premium support for laid off workers and significant investments made in workforce development programs including more than 300,000 summer youth jobs. 

While the Department of Labor has been working on an ambitious agenda to promote economic recovery and train workers for the careers of the future, Solis’ department has also revamped agencies suffering from years of neglect.

“In a labor market where jobs are difficult to find and workers are glad to have the jobs they hold, it is too easy for workers to be exploited,” Solis continued. “We are strengthening our efforts to be vigilant in protecting the rights and safety of workers by hiring additional enforcement personnel and reviewing and improving our regulatory efforts.”

The Recovery Act and the department’s new priorities have allowed agencies to increase their capacity to protect workers’ health and safety, pay, and benefits after nearly a decade of cuts. For example, additional resources have allowed the department to hire an additional 250 investigators to ensure compliance with our nation’s wage and child labor laws.

“Especially in this economy, every dollar an employer steals from a worker is a dollar a family loses to pay for basic necessities,” Miller said.

Solis outlined five key priorities for her department:

(1)        Significantly reduce fatalities resulting from the most common causes at workplaces covered by the Occupational Safety and Health Administration and mining sites.
(2)        Reduce the number of repeat violators of minimum wage, overtime, and workplace safety laws.
(3)        Raise labor standards low-wage trading partners in order to create a more balanced playing field for American manufacturing employees. Create a program to help workers injured on the job return to work so that they can continue to be productive members of America’s workforce.
(4)        Increase opportunities for America’s workers to acquire the skills and knowledge to succeed in a knowledge-based economy.

“The Department has outlined these high-priority goals to focus our agencies on the most critical needs affecting the safety, health, and economic security of workers,” Solis said.

The companies surveyed by the GAO – which the Congressional watchdog agency did not identify – included major airlines, electronics, insurance and steel companies that filed for bankruptcy in the last decade and dumped their pension liabilities onto the Pension Benefit Guaranty Corporation. PBGC provides pension protection for 44 million workers and is responsible for administering benefits for more than a million Americans.

“It is fundamentally wrong that executives were able to line their pockets with millions of dollars from bonuses, stock options and free joyrides on corporate jets, while watching their workers’ retirement security slip into peril,” said Miller. “Executive compensation and golden parachutes should be aligned to the fate of workers’ retirement plan. This will create an incentive for executives to fix workers’ pension plans before they go broke.”

Miller said the he is considering legislation that will freeze executive compensation if the company’s rank-and-file pension plan becomes significantly underfunded.

While rank-and-file employees face freezes or cuts in benefits if their pension plan’s liabilities significantly outstrip assets, there are no laws that link the underfunding of workers’ pension plans to an executive’s benefits.  GAO found that millions of dollars in executives’ retirement and other fringe benefits were protected from bankruptcy while some workers saw a drastic reduction in benefits.

The GAO also found:

• At four companies, executives received $49.5 million in retirement, deferred compensation or severance pay. Four executives at one airline alone received $32.6 million in retirement and deferred compensation.
• Executives at some companies received salaries in excess of $10 million dollars in the years leading up to bankruptcy.
• Some executives received millions of dollars in stock awards, income tax reimbursements, retention bonuses, severance packages, and supplemental executive-only retirement.
• Some were provided other benefits such as apartments, personal trips on company airplanes and helicopters, club memberships, legal fee reimbursement, and automobiles.
• The families and executives at one insurance firm used the company’s Boeing 727 and Sikorsky helicopter for personal trips to, among other exotic locations, China, Spain, Greece and Hawaii. 

To read the full GAO report, click here.

“It is beyond time that American workers have basic and clear information on costs and choices contained in their 401(k) plan,” said U.S. Rep. George Miller (D-CA), chairman of the House Education and Labor Committee. “The economic collapse has fueled Americans’ concerns about whether they will have enough savings to last them throughout retirement. This bill will give Americans a fighting chance to strengthen their retirement and increase our nation’s future economic security.”

Miller said the issue is particularly important given that increasing numbers of American workers are relying on 401(k)s to help them pay for a decent retirement. Roughly 50 million Americans now have a 401(k)-style plan. Past surveys have shown that more than 80 percent of workers don’t know how much they are paying in fees on their retirement savings accounts.

According to the Government Accountability Office, even a seemingly small difference in the fees that workers pay can make an enormous difference in the overall size of their 401(k) account balance. A 1 percentage point difference in fees can reduce retirement benefits by nearly 20 percent.

Specifically, the version of H.R. 2989 adopted by the committee would:

• Require 401(k) plans to disclose fees in one dollar figure taken from participants accounts in a worker’s quarterly statement;
• Require 401(k) service providers and plan administrators to disclose fees charged on 401(k) plans broken down into four categories: administrative fees, investment management fees, transaction fees, and other fees;
• Help workers understand their investment options by providing basic investment information, including information on risk, return, and investment objectives;
• Require plan administrators to offer at least one low-cost index fund to plan participants in order to receive protection against liability for participants’ investment losses;
• Require service providers to disclose financial relationships so companies that sponsor 401(k) plans can make sure there are no conflicts of interest;
• Ensure that if workers get investment advice through their jobs, that advice be based on the workers’ needs – not the financial interest of those providing the advice;
• Provide adjustments to pension funding rules to ensure plans can weather the economic crisis without being forced to choose between cutting jobs or freezing plans.

 
For more information on H.R. 2989 and the effects of hidden fees on workers’ retirement savings, click here.

“The American retirement system has already suffered $2 trillion in losses due to last year’s economic collapse. Now more than ever, Americans cannot afford to subject their hard-earned retirement savings to the increased threats posed by conflict-driven advice,” said U.S. Rep. Rob Andrews (D-NJ), chairman of the subcommittee. “Working Americans deserve and require conflict-free advice so that they can make informed and responsible decisions about their financial future.”

The Conflicted Investment Advice Prohibition Act of 2009 (H.R. 1988) would restore federal safeguards that ensured that investment advice provided to workers on their employer-sponsored retirement plan be independent and free from any conflicts of interest.

Protections against providing conflicted investment advice were watered down by the Pension Protection Act and a midnight proposal rushed through by the Bush administration’s Department of Labor. These actions opened the door for financial services companies to provide advice to employees where they had a direct or indirect financial interest.

The Conflicted Investment Advice Prohibition Act will restore workers’ protections by laying out clear rules to ensure that workers receive investment advice at work that is based solely on interests of the account holder’s needs, not investment firms’ bottom line.

"When a worker spends most of their lifetime investing their hard-earned dollars into an account for their retirement and later discover that they were being charged fees that contributed to a significant loss of their nest egg, they understandably lose trust and confidence in the system,” said U.S. Rep. Rob Andrews (D-NJ), chairman of the subcommittee and cosponsor of the bill. “The lack of transparency in the 401(k) system is unacceptable and must end now."

According to recent data, more than two-thirds of workers with retirement plans rely solely on 401(k) type plans as their primary retirement vehicle. Where investment decisions were once made by professionals managing a traditional pension portfolio on behalf of workers, the responsibility of picking the right investments and implementing retirement savings strategies are left up to an individual account holder.

“I pleased that that subcommittee moved quickly on this urgent priority,” said Rep. George Miller (D-CA), chairman of the full committee and sponsor of H.R. 1984. “Americans should be entitled to clear and complete information on the fees taken from their hard-earned retirement savings.”

According to the U.S. Government Accountability Office, even a seemingly small difference in the fees that workers pay can make an enormous difference in the overall size of their 401(k) account balance. A 1 percentage point difference in fees can reduce retirement benefits by nearly 20 percent. A 2007 survey by the AARP found that roughly 80 percent of plan participants were not aware how much in fees were taken out of their 401(k)s.

Specifically, the 401(k) Fair Disclosure for Retirement Security Act of 2009 would:

• Ensure that workers receive basic investment information, including information on risk, return, complete fees, and investment objectives before signing-up for a plan;
• Require that all fees – in one number – that are charged against a worker’s account to be included in the account holder’s quarterly statement;
• Require service firms to tell employers the fees workers are charged on all investment options into four categories: administrative fees, investment management fees, transaction fees, and other fees;
• Require 401(k) plans to offer at least one low-cost index fund to plan participants in order to receive protection against liability for participants’ investment losses;
• Require service providers to disclose financial relationships so companies that sponsor 401(k) plans can make sure there are no conflicts of interest; and
• Give the U.S. Department of Labor the authority to enforce new disclosure rules and fine service providers who violate them.

The 401(k) Fair Disclosure for Retirement Security Act is endorsed by a number of consumer and shareholder rights groups, including the AARP, Consumer Federation of America, and the Pension Rights Center. To view a complete list, click here.

For more information on the 401(k) Fair Disclosure for Retirement Security Act of 2009, click here.

The committee obtained a draft PBGC Inspector General report that alleges Millard may have had knowingly inappropriate contacts with Wall Street firms, some of which were awarded contracts to advise PBGC as it reallocated a portion of PBGC’s then $48.4 billion investment portfolio. PBGC solicited bids for these contracts to implement the new investment policy the former PBGC board approved in February 2008. The policy would, among other things, dramatically increase PBGC’s exposure to the stock market. The Inspector General’s report also raises serious questions about whether Millard had contacts with firms where he may have been seeking employment.

To read the PBGC Inspector General report, click here.

Last year, the committee investigated an outside consultant’s report – commissioned by PBGC – that raised series questions about the agency’s management and governance practices.

For more information on the committee’s work, click here.

The 401(k) Fair Disclosure for Retirement Security Act of 2009 (H.R. 1984) will help workers shop around for the best retirement options by requiring simple fee disclosure on the investment options contained in their employer’s 401(k) plan. Current law does not require all fees workers pay to be disclosed; and even for information that is available, it can be difficult for workers to find and evaluate.

“Especially during these troubling economic times, workers need to be able to account for every penny taken from their hard-earned savings,” said U.S. Rep. George Miller (D-CA), chairman of the House Education and Labor Committee. “Workers should be entitled to clear and complete information about their retirement security.”

According to recent data, more than two-thirds of workers with retirement plans rely solely on 401(k) type plans as their primary retirement vehicle. Where investment decisions were once made by professionals managing a traditional pension portfolio on behalf of workers, the responsibility of picking the right investments and implementing retirement savings strategies are left up to an individual account holder.

“During a time where American workers have already lost $2 trillion in assets due to last year's market downturn, it is vital that employees have full access to clear information regarding their hard-earned retirement savings and financial security,” said Rep. Rob Andrews (D-NJ), chairman of the Health, Employment, Labor, and Pensions Subcommittee.

According to the Government Accountability Office, even a seemingly small difference in the fees that workers pay can make an enormous difference in the overall size of their 401(k) account balance. A 1 percentage point difference in fees can reduce retirement benefits by nearly 20 percent. A 2007 survey by the AARP found that roughly 80 percent of plan participants were not aware how much in fees were taken out of their 401(k)s.

Specifically, the 401(k) Fair Disclosure for Retirement Security Act of 2009 would:

• Ensure that workers receive basic investment information, including information on risk, return, complete fees, and investment objectives before signing-up for a plan;
• Require that all fees – in one number – that are charged against a workers account to be included in the account holder’s quarterly statement;
• Require service firms to tell employers the fees workers’ are charged on all investment options into four categories: administrative fees, investment management fees, transaction fees, and other fees;
• Require plan administrators to offer at least one low-cost index fund to plan participants in order to receive protection against liability for participants’ investment losses;
• Require service providers to disclose financial relationships so companies that sponsor 401(k) plans can make sure there are no conflicts of interest; and
• Give the U.S. Department of Labor the authority to enforce new disclosure rules and fine service providers who violate them.

 A similar bill (H.R. 3185) was approved by the committee in April 2008.

For more information on the 401(k) Fair Disclosure for Retirement Security Act of 2009, click here.

According to a survey released late last year by the AARP, a growing number of baby boomers have stopped contributing to their retirement plans just to make ends meet as a result of the financial and housing crises. Many companies have also recently announced that they are suspending matching contributions to their workers’ 401(k)s.

“Our nation’s system of retirement security is imperiled, headed for a serious train wreck,” said John C. Bogle, founder and former chief executive of the Vanguard Group. “That wreck is not merely waiting to happen; we are running on a dangerous track that is leading directly to a serious crash that will disable major parts of our retirement system.”

The economic downturn has drained trillions of dollars from Americans’ 401(k) accounts and hit other forms of retirement assets, including home values. In fact, median household net worth for those near retirement fell by more than 45 percent between 2004 and 2009, according to an analysis by the Center for Economic and Policy Research.

“The events of the last two years shown how exposed workers’ retirement income is to market risk,” said Dean Baker, co-director of the Center for Economic and Policy Research. “The collapse of the housing bubble has called attention to the fact that the value of not only their pensions, but also their homes, fluctuate with the market, while their homes are an even more important asset for most workers.”

According to recent data, more than two-thirds of workers with retirement plans rely solely on 401(k) type plans as their primary retirement vehicle. Where investment decisions were once made by professionals managing a traditional pension portfolio on behalf of workers, the responsibility of picking the right investments and implementing retirement savings strategies are left up to an individual account holder.

“Today most workers with pension coverage have a 401(k) as their primary or only plan. They were not designed for that role,” said Alicia Munnell, director of the Center for Retirement Research at Boston University. “Evidence indicates that people make mistakes at every step along the way. They don’t join the plan; they don’t contribute enough; they don’t diversify their holdings; they over invest in company stock; they take out money when they switch jobs; and they don’t annuitize at retirement.”

As a result, witnesses urged Congress to work on solutions that would strengthen 401(k) plans and consider additional strategies to ensure that all Americans have the ability to save for retirement, regardless if their employer offers a plan at work.

“As we work to preserve and strengthen 401(k)s and the other legs of the retirement savings stool, we must also tackle these difficult questions about the state of our nation’s retirement system as a whole and look to see whether we need to create a retirement system that works for all Americans, not just the fortunate few,” said Miller.

Photos from the hearing:


Created with flickrSLiDR.

"We are disappointed that the Bush administration moved forward to enact a new regulation that will make it harder for workers to receive fair and honest advice when making key financial decisions about their futures.

“With just a few hours to go, the Bush administration is still scrambling to give Wall Street a last-minute payback. Today’s regulation will allow financial services companies to reap windfall profits at the expense of workers and tips the scales towards special interests by opening the door to conflicts of interest among the very consultants purporting to offer unbiased investment advice. At a time when Americans are rightly concerned over their financial future, it’s unfortunate that the Labor Department is using its time to give special interests paybacks rather than working to actually help workers.

“As we transition to a new administration, we will use every tool at our disposal to block implementation of this harmful regulation.”

“Americans have seen trillions of dollars evaporate from their retirement accounts over the last few months as a result of our economic crisis,” said Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee. “Congress worked swiftly, and in a bipartisan way, in order to provide important relief to seniors who may face a steep tax if they do not make a withdrawal from their depleted retirement accounts.”

Miller and Rep. Rob Andrews (D-NJ) called on U.S. Treasury Secretary Henry Paulson in October to suspend a tax penalty for seniors who do not take a minimum withdrawal from their depleted retirement accounts, such as 401(k)s. Last week, the agency declined to act to provide relief for the 2008 tax year. To read the letter to Sec. Paulson, click here.

“Countless jobs and retirement benefits will remain intact thanks to the enactment of the Worker, Retiree, and Employer Recovery Act today,” said Andrews, the chairman of the Health, Employment, Labor and Pensions Subcommittee. “As a longtime proponent of suspending the required minimum distribution for retirees aged 70 ½ and over with 401(k) and other defined contribution accounts and as the author of the transition rule which provides single employers an affordable transition towards fully funding their pension plans, I would like to thank Chairman Miller for his tremendous leadership in enacting HR 7327.”

Current regulations require account holders of 401(k)-type account to withdraw a minimum amount of money every year after they reach 70 ½ years old. If seniors do not take out a minimum amount based on an Internal Revenue Service formula, they are subject to a 50 percent penalty. For instance, if an individual fails to withdraw $4,000, they would be assessed a $2,000 tax the next year.

H.R. 7327 also eases funding requirements for companies and other pension plans forced to make additional contributions as a result of the economic downturn and makes technical corrections to the Pension Protection Act of 2006.

“Americans have seen trillions of dollars evaporate from their retirement accounts over the last few months as a result of our economic crisis,” said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee. “I’m glad that Congress worked swiftly, and in a bipartisan way, to provide important relief to seniors who may face a steep tax if they do not make a withdrawal from their depleted retirement accounts.”


“This relief will help workers and seniors safeguard their retirement savings during the economic crisis.” said Ways and Means Committee Chairman Charles B. Rangel (D-NY).   “Every segment of our economy is experiencing financial pain and this bipartisan legislation will go a long way to help employers do the right thing for their workers even in these difficult economic times.”


“This year’s economic downturn has seriously impacted the U.S. job market and benefits for workers,” said Rep. Rob Andrews (D-NJ), the chairman of the Health, Employment, Labor and Pensions Subcommittee.  “The House acted responsibly tonight to address this problem by passing the Worker, Retiree, and Employer Recovery Act. The bill will provide financial relief to large and small employers, as well as individuals with 401(k) accounts and alike, who have been adversely affected by this unprecedented market downturn.”


“In the face of daunting economic challenges and an unanticipated strain on our nation’s retirement system, Congress has taken a measured and appropriate step to ease the financial burden on workers, retirees, and employer-sponsored pension plans,” said U.S. Rep. Howard P. “Buck” McKeon (R-CA), the Education and Labor Committee’s senior Republican. “While we remain fully and unequivocally committed to the notion that businesses and unions must fully fund their pension obligations to their workers, the small step we’re taking today will provide much-needed relief to participants, plan sponsors, and beneficiaries in the short term, potentially staving off job cuts, benefit reductions, or financial burdens that would be far more harmful to workers and retirees in the long term.”


“The minimum distribution rules are especially burdensome in the face of sharp financial market declines; suspending these rules for 2009 will provide some much-needed relief to senior citizens, and I hope the Senate is able to act quickly on this measure,” said Rep. Jim McCrery (R-LA), the senior Republican on the Ways and Means Committee.


Current regulations require account holders of 401(k)-type account to withdraw a minimum amount of money every year after they reach 70 ½ years old. If seniors do not take out a minimum amount based on an Internal Revenue Service formula, they are subject to a 50 percent penalty. For instance, if an individual fails to withdraw $4,000, they would be assessed a $2,000 tax the next year.


H.R. 7327 also eases funding requirements for companies and other pension plans forced to make additional contributions as a result of the economic downturn and makes technical corrections to the Pension Protection Act of 2006.

"The Wall Street Journal is needlessly creating fear among Americans rightly worried about their retirement security by misrepresenting my efforts to strengthen workers' retirement savings - attacks that have no basis in fact. I do not support 'abolishing' 401(k)s, moving these plans, or changing their tax status, plain and simple," said Miller. "The truth is that Democrats in Congress are working to preserve and strengthen 401(k)s.

"Last year, our Committee worked with the employer and investment community to pass legislation to increase transparency and protect workers' hard-earned retirement savings from excessive and hidden fees that could cut deeply into their accounts. In addition to providing workers with better information about the fees they're paying, we know other steps must be taken to make sure our retirement system is as strong as it can be for our nation's workers and retirees. These principles will help guide the next Congress as we work to ensure that every American can enjoy a safe and secure retirement."

Recent hearings held by the committee have shown the devastating toll the economic downturn has leveled on Americans? retirement savings, including the loss of over $4 trillion in pension benefits.

To help preserve and strengthen 401(k)-style and other retirement plans, Chairman Miller today released the following principles:

• Expose excess fees that Wall Street middle men take from workers accounts.Currently, millions of Americans are paying excessive 401(k) fees at the hands of Wall Street middle men who refuse to fully disclose and detail extra fees and charges paid by employees. This is wrong, especially in light of the dramatic losses faced by millions of Americans in their 401(k) plans this year. According to the GAO, even a difference of just 1 percentage point in hidden fees can drastically eat into a worker's 401(k) account balance - by as much as 20 percent or more over a career. This 1 percentage point difference could cost a worker with a $20,000 account balance more than $12,000 in reduced savings over this time period.
• Bring young and low-wage workers into the system at a higher rate through automatic enrollment for employers already offering 401(k)s. Unless employers more quickly automatically enroll new workers, nearly 40 percent of workers born in 1990 will have no 401(k)-style savings at all when they retire, according to the GAO. Current law allows employers to automatically enroll their workers in their companies' 401(k)s but employers have been slow to enroll employees. Studies show that automatic enrollment can increase participation by as much as 35 percentage points. And even after 3-4 years, the vast majority of those automatically enrolled, are still participating.
• Ensure that retirement accounts have diversified investment options with low fees.Many 401(k) plans have inadequate, and all too often, expensive investment options. Workers should have access to simple investment options, including low-cost index funds.
• Ensure workers have access to reliable independent investment advice. Too often, workers are given self-interested advice from financial advisors or money managers - advice that may not always lead to the best retirement investment. All plan participants should have access to objective advice and investment information to help them better manage their savings.
• Reduce vesting periods and improve portability of 401(k) accounts. Workers are leaving millions of dollars on the table because of employers' rules that take away their savings whey they change jobs. In many cases workers are required to work at a firm for 3 years or more before they can fully access their retirement savings. In addition, the GAO says that by automatically rolling over accounts into a new retirement plan when workers leave a job, Americans' retirement savings would increase by a projected 11 percent on average, with the biggest percentage increases for low-income workers.

In April, the committee passed the 401(k) Fair Disclosure for Retirement Security Act (H.R. 3185), which would help workers shop around for the best retirement investment options by providing complete information on how much in fees is taken from their retirement accounts. The legislation was supported by the AFL-CIO, the AARP, the American Society of Pension Professionals and Actuaries, the Council of Independent 401(k) Recordkeepers, and the Pension Rights Center. For more information, click here.