Workers to Gain More Pension-Dollar Say

Washington Post, October 14, 1992
By Associated Press

A new government regulation will give employees greater choice and flexibility in pension plans in which they direct their own investments. The same regulation also will relieve employers from liability for investment decisions. Published yesterday in the Federal Register, the rule will not take effect until Jan. 1, 1994, giving employers more than a year to effect the necessary changes in the plans. “This regulation will afford millions of American workers the opportunity to exercise independent, meaningful control over the investment of their pensions dollars,” Assistant Labor Secretary David George Ball said in a statement. “it gives people the tools they need to maximize their retirement income.”

There are about 100,000 pension plans covering 19 million participants who can direct their investments, the department’s Pension and Welfare Administration said. They are called defined-contribution plans, because employees determine what percentage of their wage salaries to contribute. The plans, which hold more than $335billion in assets, include 401(k) and company profit sharing programs. They typically offer stock in the company and mutual funds, whose returns vary according to market forces, as well as guaranteed investment contracts, which provide a set return. The guarantees come from insurances companies, banks or other firms offering such contracts. The regulations require plan sponsors to provide participants with:

The opportunity to choose from at least three investment alternatives, each of which has different risk and return characteristics.
The opportunity to switch investments “with a frequency which is appropriate in light of the market volatility of the investment, but not less frequently than quarterly for the three core investment alternatives.”
Sufficient information about the plans to enable informed investment decisions.

“By adopting a flexible regulatory framework which, among other things, permits employers to accommodate changes in the investment needs of employees and changes in the market place, employers will be encouraged to give employees greater control over the investment of pension assets, “ Ball said. “At the same time, the regulation ensures that the participants have the opportunity to make informed investment decisions and choose from a broad range of diversified investment alternatives,” he added. Since 1974, federal law specified the fiduciary responsibility of employers providing defined-benefit plans, according to Jeffrey Miller of Shearson Lehman Brothers Inc.’s Retirement Plans Services. But until now, there was no regulation spelling out the employer responsibility for defined contribution plans. This is probably the most significant regulation pertaining to qualified plans to come out of the federal government in the last several years, Miller said. It is a “road map for employers to follow in running their participant-directed plans.”