Writer Urges Exemption From Notice Requirements for Benefit Plans

[1] I am writing on behalf of a client concerning the regulations that the Department of Treasury is developing under the pension-related portions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), particularly section 659 concerning "notice requirements." Briefly, we believe that the new notice requirements should not apply to plans allowing participants to choose between the plan's new and old benefit formulas on an annual basis. For plans that offer participants the ability to make an annual choice, there is "no significant reduction in rate of future benefit accrual," and, therefore, these plans should be exempt from the law's new notice requirements.

[2] When the Treasury issues regulations under the new notice requirements imposed by Code § 4980F and ERISA § 204(h), we believe that Treasury should exercise its statutory authority to exempt plans offering participants the ability to choose on an annual basis between the plan's new and old benefit formulas.

[3] When Congress amended the notice requirement imposed by prior law, it expressly authorized the Treasury to provide a simpler form of notice for, or to exempt from any notice requirement, a plan offering participants the option to choose between the new benefit formula and the old benefit formula.¹

[4] Congress granted this authority to the Treasury at least in part because the offering of choice is governed by ERISA's fiduciary responsibility standards. ERISA's fiduciary standards apply independently of the more narrow statutory notice requirements under Code § 4980F and ERISA § 204(h), which apply only when a plan is amended to provide for a significant reduction in the rate of future benefit accrual:

"The House bill also authorizes the Secretary to provide a

[5] Just last year, the Department of Labor issued a request for information concerning the disclosure obligations of fiduciaries of ERISA-governed plans.⁴ In these circumstances it would be wholly inappropriate for the Treasury to issue regulations governing a subject that is regulated by a different legal regime for which the Treasury has no responsibility, that is currently being addressed by another federal agency, and that is subject to an evolving body of case law.

[6] Suppose that an employer establishes a new plan offering choice. Or, alternatively, suppose an employer amends an existing pension plan to offer participants a choice between the plan's current benefit formula and a new formula that does not significantly reduce the rate of future benefit accrual, but offers the possibility of a significant increase in the rate of future benefit accrual. The new notice requirements will not apply in such circumstances -- although ERISA's fiduciary standards will apply. Since the Treasury has no authority to prescribe notice requirements in these circumstances, it makes no sense for the Treasury to issue regulations governing plans offering annual choice where the new plan offers a benefit formula that might reduce the rate of future benefit accrual. Plans in all of these situations should be governed by a consistent set of legal standards: those set forth in ERISA's fiduciary responsibility provisions.

[7] We are concerned that, rather than prescribing a simpler form of notice or an exemption, the Treasury is seriously considering imposing additional or more stringent disclosure requirements on plans offering participants choice, including those that offer annual choice.

[8] This would stand the statute on its head. Far from authorizing the Treasury to impose additional or more stringent notice requirements on plans offering choice, Congress authorized the Treasury to prescribe a simpler form of notice or a complete exemption for such plans. The Treasury should not subvert Congressional intent by imposing more onerous or elaborate notice requirements on plans offering annual choice.

[9] Annual choice empowers participants to determine the benefit formulas most appropriate to their career and financial and personal circumstances, and to accommodate future changes to those circumstances. Plans that offer annual choice do not impose on any participant a reduction in the rate of future benefit accrual at the time of the introduction of the annual choice arrangement or at any time thereafter. An exemption for plans offering annual choice appropriately recognizes this important, unique distinction.

[10] We respectfully urge you to consider these comments as you develop this regulation.

Sincerely,

²H.R. (Conf.) Rep. No. 84, 107th Cong., 1st Sess. 266 (2001) (emphasis added).

³ See, e.g., Varity Corp. v. Howe, 516 U.S. 489 (1996); Ames v. American Nat'l Can Co.,170 F.3d 751 (7th Cir. 1999); Ballone v. Eastman Kodak Co.,109 F.3d 117 (2d Cir. 1997); Fischer v. Philadelphia Elec. Co., 96 F.3d 1533 (3d Cir. 1996); Anderson v. American Resolution Trust Co., 66 F.3d 956 (8th Cir. 1995); Bixler v. Central Pennsylvania Teamsters Health & Welfare Fund, 12 F.3d 1292 (3d Cir. 1993); Eddy v. Colonial Life Ins. Co., 919 F.2d 747 (D.C. Cir. 1990).

⁴ 65 Fed. Reg. 55,858 (Sept. 14. 2000)