WASHINGTON, DC - The House Committee on Ways and Means held a hearing today examining funding levels of defined benefit pension plans and the rules that apply to investment advice that is provided to participants in defined contribution plans. Committee Chairman Charles B. Rangel (D-NY) gave the following opening statement:
“The purpose of the hearing today is to hear private sector recommendations on two critical topics confronting our nation’s retirement plans. The Administration is not here today, they are developing proposals on these two topics, and we will hear from them in the future. Meanwhile we will hear from the private sector on two critical topics.
“The first topic is the impact of the financial crisis on the funding rules that apply to private sector defined benefit pension plans. Today, over 30,000 private sector pension plans provide benefits to almost 40 million Americans. The tax code contains rules that require employers to periodically contribute money to pension plans to make sure that promised benefits are paid.
“The impact of the global financial crisis on the level of pension funding has been very severe. By some accounts, private sector U.S. pension plan assets fell by $734 billion in 2008, or about 27 percent. Employers are faced with the struggle of making up significant pension plan losses while operating their businesses in a challenging economy, with reduced cash flow and with reduced access to credit. Unions and employees are worried about the security of their retirement benefits and cuts to benefits.
“Today, we will hear from private sector stakeholders on the impact of the global financial crisis on pension funding. These witnesses will present data on the impact of the financial crisis on pension funding. And these witnesses will also provide recommendations on how to provide relief to employers from the perspective of individuals who participate in the plans, unions who negotiate retirement benefits for their workers, and sponsoring employers.
“The second topic of today’s hearing involves defined contribution plans, such as 401k plans, where participants get to choose how to invest their account balances. Today, approximately 460,000 plans permit investment direction by participants. These plans cover an estimated 70 million participants and hold an estimated $2 trillion in assets. Most participants are not experts on financial investment and could use help in selecting their retirement plan investments. However, some industry surveys indicate that only 50 percent of retirement plans provide investment advice and assistance to participants.
“The retirement plan rules should encourage employers to offer investment advice to plan participants. However, the rules must also ensure that the investment advice is not biased by the financial interests of those who provide the advice. Today’s hearing will focus on whether the present law rules provide for unbiased advice. We will hear testimony from the perspective of plan participants, employers, and plan service providers that want to provide investment advice. I look forward to hearing from our witnesses and thank them for their participation today."
