Bush, Portman/Cardin Propose Retirement Plan Reforms; Private Company ESOPs Not Affected

President Bush weighed in on the company stock in retirement plan issue with a moderate proposal apparently limited to 401(k) plans (legislative details are not available). The main provisions are:

• Workers could diversify company stock in their accounts after three years of service.
• Executives would face the same restrictions on selling as employees.
• Fiduciaries would be more responsible for investments during blackout periods and workers would have a 30-day notice to make changes prior to the blackout.
• Workers would receive more detailed and frequent statements about their accounts, including educational material on diversification.
• Companies would have more flexibility in providing advice through intermediary organizations on investments.

The sponsors of last year's retirement plan provisions in the new tax law, Rob Portman (R-OH) and Benjamin Cardin (D-MD), introduced their own bill (The Employee Retirement Savings Bill of Rights) that would affect both public company ESOPs and 401(k) plans. It would require that:

• After three years of service, employees could sell employer stock they have received as matching contributions, and after five years could sell stock received as non-elective contributions.
• Employers would have to notify employees at least 21 days in advance of any significant period in which employees will be unable to trade.
• Employees would receive periodic notices on the advantages of diversifying their accounts.
• There would be a new tax incentive to help employees pay for the cost of retirement planning services.

Both bills would protect existing provisions for ESOPs in closely held companies, where the vast majority of ESOPs are. Private company ESOPs are almost always accompanied by other diversified retirement plans; public company ESOPs are usually part of 401(k) plans. The provisions of the Portman-Cardin bill should not have a major disincentive effect on ESOPs in public companies, and of course, would be very welcome news, as would be the Bush plan, for ESOPs in private companies.