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The Pension Protection and Expansion Act of 2003 - S. 9

The following summary of The Pension Protection and Expansion Act of 2003 (S. 9) was prepared by the U.S. Senate Democratic Caucus. It provide an overview of this bill.

Strengthened Pension Protections

Diversification: One of the main lessons of the Enron debacle was that too many people had most of their retirement nest egg in one basket - company stock. Under the legislation, 401k participants with three years of service could sell their employer stock to diversify their holdings. If employer stock is at least 20 percent of an account's value, the plan would be required to notify participants that they may be overinvested in employer stock. Each year, companies would be required to make sure including company stock in the pension plan is a prudent investment for their workers. In addition, 401k sponsors could provide matching contributions in employer stock, or provide employer stock as an employee option, but not both, unless they also protect workers through a traditional, guaranteed pension plan.
Accountability: Insiders would have increased liability for breaches of fiduciary responsibility. Bonding and insurance requirements would increase for plans that hold employer securities. S. 9 would expand protections for whistleblowers who bring to light corporate malfeasance.
Joint Trusteeship: Employer plans would be required to have trustees that represent employers and participants on an equal basis. Unions that represent plan participants would have the right to designate the trustees who represent participants.
Investment Advice: The bill would expand the ability of 401k participants to receive investment advice but require that the advice be independent.
Women's Pension Protections: The bill would require spousal consent for distributions from defined contribution plans. Plans that provide a lifetime annuity option would be required to offer an annuity that covers surviving spouses. The bill would also protect the rights of widows, widowers and former spouses under government retirement programs.
Cash Balance Plan Protections: Companies that convert their existing plans to a cash balance plan would be required to give current participants the option of continuing to accrue benefits under the existing plan.
Investment Education and Information: Most workers would be assured quarterly statements of their account balances and benefits. Workers purchasing company stock through their pension plans would have the same rights as shareholders buying company stock on the open market, including the right to vote shares and to receive material information about the economic condition of the company. Every year, workers would receive materials to expand financial literacy and to help them figure out how much they need to save for retirement.

Expanded Pension Coverage

The main pension problem facing the country is that half of our people do not have any pension.

Savers Credit: The bill would make the Savers Credit refundable so that low-income people, who disproportionately lack pensions, would be able to use it.
Payroll Deduction IRA: The bill would require businesses with more than 10 employees that do not offer a pension plan to allow employees to fund an IRA through payroll deductions.
Small Business Pension Tax Credit: To encourage the establishment of more pension plans, the bill would give small business a tax credit for their contributions to new pension plans.

Corporate Tax Shelters, Corporate Inversions, and Executive Compensation

Corporate Tax Shelters: In addition to strengthening the Treasury Department's tax enforcement regime, the shelters provision would clarify the so-called "economic substance doctrine," which the courts have developed to deny certain tax-motivated transactions their intended tax benefits.
Corporate Inversions: The bill would prevent companies from re-incorporating in tax haven countries to avoid U.S. taxes.
Executive Compensation: The bill would remove the longstanding moratorium on new Treasury regulations regarding deferred executive compensation. It also would prohibit the deferral of compensation parked in offshore trusts and increases withholding on bonuses. The bill would clarify the definition and tax treatment of executive loans.