New Rules on Pensions Are Adopted
New York Times, October 14, 1992
By Robert D. Hershey Jr.

Washington, Oct. 13 – Filling a void that had prevented many companies from offering a wide range of savings and pension plans to their workers, the Government adopted rules today protecting employers from lawsuits by employees disappointed with the return on their investment. The long-range intent of the new regulations is to encourage workers to exert more control over their investment and pension plans.

Although many plans currently meet one or more of the new standards, private specialists said that adoption of the new rules, completing an arduous five-year process, would ultimately touch the vast majority of pension, profit sharing and 401(k) savings plans in which employees can pick their investments.

“This regulation will afford millions of American workers the opportunity to exercise independent, meaningful control over the investment of their pension dollars,” David George Ball, an Assistant Secretary of Labor, said. “It gives people the tools they need to maximize their retirement income.”

‘Most Significant’
The Labor Department estimated that there are now 100,000 pension, profit sharing and savings plans, covering 19 million participants and holding assets of more than $335 billion.

“This is the most significant thing to affect the pension industry in years,” Jeffrey M. Miller, director of retirement planning services at Shearson Lehman Brothers Inc., said. The detailed rules, outlined by the department last Thursday, were published today in the Federal Register. Including background, the complex set of legal strictures specifying how an employer can be deemed as exercising proper fiduciary responsibility while allowing employees to make their own choice, runs to 32 pages.

Employers are not compelled to subject themselves to the regulations but must do so to obtain the relative immunity from lawsuits that had been one of the driving forces in producing them.

Three Investment Choices
Among other things, the rules require that workers be given a choice of at least 3 investment vehicles, each having materially different characteristics of risk and return. Workers must also be given investment instructions with frequency “appropriate” to the market volatility of the investment but at least quarterly for the three most popular types. According to a recent survey by the Bankers Trust Company, trustee and custodian for more than $340 billion in pension and savings-plan assets, the most common number of investment options now provided is four, with 40 percent of 200 major companies polled offering that many. Only 10 percent of plans, compared with 20 percent in the bank’s 1986 survey, now offer fewer than three. The bank also found that more than 75 percent of plans offer a choice between company stock and a portfolio of guaranteed investment contracts, while more than 50 percent also offer a fund of diversified equities. The requirement for periodic communication with participants allows an employee to decide whether to switch from one vehicle to another if, say, the stock market is slumping and he or she wants to move into fixed-income securities.

Disclosure Provision

There is also a provision for disclosure that goes well beyond what is currently provided by many plans. This included a statement that the sponsor is being relieved of liability for losses arising from a worker’s instructions, identification of any outside investment managers, notice of any restrictions on voting or similar rights, a description of any transaction fees or expenses and a current prospectus. Other information must be provided on request, including the performance of other options and the value of the participant’s account. Among the major changes that have occurred since the first draft of the rules have circulated in 1987 was to expand the list of permissible investments and to remove a requirement that someone outside the company be appointed to oversee investments in the company’s stock. The final version, which takes effect for most plans in January 1994, permits an internal fiduciary to be charged particularly with insuring confidentiality of investments in the employer’s own stock. This is aimed at preventing a company from retaliating against a worker who might, for example, vote against management in an unfriendly takeover.