Senate Finance Committee Passes Retirement Reform Bill

The Senate Finance Committee has passed S. 219, the National Employee Savings and Trust Equity Guarantee Act ("NESTEG"). This wide-ranging bill covers a variety of areas of retirement law. A major provision covers the use of employer stock in retirement plans. The bill would apply only to public companies. It would cover any plan (including ESOPs and 401(k) plans) in which employees can defer their own income into the plan, plans in which employer contributions are used to meet safe-harbor testing rules, and ESOPs that are combined with 401(k) plans ("KSOPs").

Under the rules, employers would be required to allow employees to diversify any of their own deferrals made into company stock. There would be no minimum service requirements needed to qualify for this option. For employer matches, employees with three years of service must be able to diversify their account balances. A three-year transition period would phase in the requirement 33.3% per year.

The bill now will be considered by the Labor Committee. The House is moving on its own pension reform legislation, but the bill currently does not include provisions on diversification or many other retirement issues in NESTEG, focusing instead on defined benefit plan reform and the provision of financial advice for retirement plan participants. If a bill does go to conference, however, the diversification provisions are not likely to be controversial. Prospects for passage seem better this Congress than they have been in the past unless the bill becomes a vehicle for wider retirement plan rules changes proposed by the Administration.