The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
“PENSION SECURITY ACT OF 2002” mentioning the U.S. Dept of Labor was published in the Extensions of Remarks section on pages E533-E534 on April 16, 2002.
The publication is reproduced in full below:
PENSION SECURITY ACT OF 2002
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speech of
HON. MARGE ROUKEMA
of new jersey
in the house of representatives
Thursday, April 11, 2002
Mrs. ROUKEMA. Mr. Speaker, I am deeply concerned about Enron employees and retirees who invested a substantial portion of their retirement assets in Enron stock and are now facing financial uncertainty. I would like to commend Chairman Boehner for working expeditiously to produce a package of reforms that will help protect the retirement savings of millions of American workers.
By virtue of my service on two key Committees--the Committee on Education and Workforce and the Committee on Financial Services--I wear more than one hat when it comes to Enron. As you know, the Financial Services Committee is working to determine how the regulatory system failed in the Enron case and how reforms could correct these shortcomings. Our focus today is retirement security. The issues raised by the Enron bankruptcy have serious implications for millions of Americans who depend on their employers' pension plans for their retirement. Our actions today will help to protect nearly 50 percent of American households.
I represent a section of the country that has become known as a bedroom community for thousands of men and women who work every day in one of the most important financial districts on the planet. The confidence of these professionals has been shaken over the past few months. They come to doubt some of the very institutions they previously had come to rely on. It is obvious that these concerns are echoed throughout the country.
Since the enactment of ERISA in 1974, almost half of American households have joined the ``shareholder society'' by investing in the stock market, many through their employer-provided defined contribution plans. Today, 42 million workers hold 401(k) accounts amounting to $2.0 trillion in retirement assets. Private pension plans--including 401(k)s--are crucial to retirement security for millions of Americans. These workers need to have full confidence in the security of their pension plans.
We have spent considerable time over the years promoting expanded pension coverage and portability. But we have also tried to ensure that American workers' pensions and retirement savings are protected. I have always argued that there are three necessary components of a successful retirement system: (1) accessibility; (2) security; and (3) information.
These are exactly the issues that we are facing today. We need to provide our workers easier access to pensions so that they have the ability to save for retirement. We must ensure that retirement savings are secure. And we must ensure that workers have the information they need to make wise choices to fully achieve their retirement goals.
The bill before us today addresses all of these important points. The Pension Security Act of 2002 will: (1) provide workers greater freedom to diversify and manage their own retirement funds; (2) give workers quarterly information about their investments and rights to diversify them; (3) expand workers' access to investment advice; and (4) ensure that senior corporate executives are held to the same restrictions as average American workers during ``blackout periods.''
In spite of the flaws exposed by the Enron debacle, we must be careful not to dissuade employers from providing such plans to their workers. Even while we make reforms to protect retirement savings, we must continue to encourage employers to make generous contributions to workers' 401(k) plans.
Workers must also be free to choose how to invest their retirement savings. It is not our role to tell employees how to manage their pension plans. However we can ensure that employees have the ability to sell company stock and diversify into other investment options. And we can also guarantee employees access to information and advice regarding their pensions and investments. We have already recognized the importance of equipping workers with the knowledge to make wise decisions for their future, but we must now make this proposal a reality.
I am pleased that this bill contains important provisions to work toward ensuring fiduciary responsibility. Specifically, at Committee markup I offered two amendments which are contained in the bill before us today.
educational resources for plan fiduciaries
The first provision requires the Secretary of Labor to ensure that information and educational resources are made available to persons serving as fiduciaries under employee benefit plans in order to assist them in diligently and effectively carrying out their fiduciary duties.
There has been a lot of talk on Capitol Hill about the rigorous fiduciary duties under ERISA. Many argue that ERISA subjects fiduciaries to what is considered the highest fiduciary obligation in the law, namely an express trust.
ERISA requires that fiduciaries have a duty of loyalty, prudence, diversification, and that they act in accordance with plan documents. Plan fiduciaries are required to discharge their duties ``solely in the interest of participants and beneficiaries'' and for the ``exclusive purpose'' of providing benefits and defraying reasonable expenses of administering the plan.''
The law requires that the ``assets of a plan shall never inure to the benefit of any employer.'' It requires that fiduciaries act with the care, skill, prudence, and diligence that a prudent person familiar with such matters would use in similar circumstances.
The responsibilities of fiduciaries are very clear in ERISA. I know these rules exist and the ERISA lawyers know it too--The problem is that oftentimes the actual fiduciaries are not aware of or do not understand these strict rules governing their behavior.
What the Enron debacle has brought to light is that this carefully crafted law of fiduciary responsibility is not always followed with the due diligence that is expected. Many people who are charged with operating employee benefit plans do not understand what their fiduciary roles require. Even worse, many do not understand the consequences for violating their fiduciary obligations.
This was a problem at a large company like Enron, as we learned from the testimony of one Enron fiduciary, Cindy Olson. We can be assured that the fiduciaries for other companies are likewise not adequately informed about their responsibilities in managing a pension plan.
Dr. Norman Stein testified in front of the Education and Workforce Committee that during a pension-counseling clinic at the University of Alabama, a personnel manager ``indicated that she did not know what a fiduciary was, did not know what rules governed a fiduciary behavior, and did not, of course, realize that she herself was a fiduciary.''
This is what is happening in the real world. How can we, in good conscience, tell American workers to entrust their retirement security to fiduciaries who do not understand the rules that govern their behavior? How can we ensure that fiduciaries are acting in the sole interest of participants and beneficiaries if they don't even know this requirement exists?
I believe that this provision is a modest first step in addressing this lack of knowledge. The Secretary is directed ``to establish a program under which information and educational resources are made available on an ongoing basis to persons serving as fiduciaries under employee benefit plans so as to assist them in diligently and effectively carrying out their fiduciary duties.''
This provision is just common sense. It addresses an issue that most of us thought was a given in the implementation of ERISA. The Enron case has demonstrated that we were incorrect in making that assumption. The Department of Labor must ensure that fiduciaries understand their responsibilities under the law. Information dissemination is a necessary first step in preventing breaches of fiduciary duties.
I am pleased that my amendment was accepted unanimously by the Committee and thank the Chairman for ensuring that it is contained in the bill that we are voting on today.
Independent Advisors for Fiduciaries
The second amendment that was unanimously accepted by the Committee and is included here requires a study of the implications of requiring an independent advisor to provide investment guidance to fiduciaries regarding the management or disposition of plan assets.
I am very concerned about the inherent problems of conflict of interest when a firm must both manage a pension plan and maximize profit. This conflict of interest is particularly acute when the employer has exclusive control over retirement plans.
As we learned all too well from our hearings on the Enron crisis, this conflict of interest is real and can be detrimental to plan participants. Outside experts would be able to give independent advice to the plan fiduciaries because they are not beholden to the employer.
It makes sense that competent professional advisors should assist with retirement plan investment management. Employers' strict fiduciary responsibilities should necessitate consultation with competent investment managers. Some employers do this. However, as we saw with Enron, others do not. In fact, in the case of Enron, the Department of Labor has taken steps to replace Enron's fiduciaries with independent experts. Every day we talk about the lessons we have learned from the Enron fiasco. This sounds like a lesson to me. How can we correct the situation of Enron and ignore the case of all other workers? Must we wait for other companies to reach the disaster point of Enron before we ensure that independent advisors assist with plan management? Every plan should have the benefit of an independent advisor to assist with plan management. If it makes sense for Enron after-the-fact, it makes sense for all businesses before there is a problem! What we saw in Enron is that when the interest of the plan participants was pitted against company interests, the participants lost.
As such, we should seriously study the implications of requiring employers to hire an independent advisor to assist in the management of plan assets. Rather than requiring that a new trustee board be created or requiring that the independent advisor serve as a plan manager, I believe we should investigate the implications of requiring that plan managers seek advice and guidance from an independent source regarding the management or disposition of plan assets. This is a common sense approach.
I do understand that some employers may be concerned about the implications of such a proposal. This bill requires a study of the issue so we can better understand the specific impact on retirement savings of requiring fiduciary consultants for individual account plans. Specifically, the study would assess:
(1) The benefits to plan participants and beneficiaries of engaging independent fiduciary advisers to provide investment advice regarding the assets of the plan to persons who have fiduciary duties.
(2) The extent to which independent advisers are currently retained by plan fiduciaries.
(3) The availability of assistance to fiduciaries from appropriate Federal agencies.
(4) The availability of qualified independent fiduciary consultants to serve the needs of accounts in individual account plans in the United States.
(5) The impact of the additional fiduciary duty of an independent advisor on the strict fiduciary obligations of plan fiduciaries.
(6) The impact of consulting fees, additional reporting requirements, and new plan duties to prudently identify and contract with qualified independent fiduciary consultants on the availability of individual account plans.
(7) The impact of a new requirement on the plan administration costs per participant for small and mid-size employers and the pension plans they sponsor.
CONCLUSION
In sum, I am committed to strengthening the retirement security of workers and their families. I believe that this bill takes important steps to further protect plan participants and I urge my colleagues to support this legislation.
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