Op-Ed ¦ March 2, 1992
New regulations more like restraining orders

By David Langer

Government regulators appear oblivious to the need to reduce the complexity of pension regulations. Despite the clamor for simplification, the Department of Treasury and the Internal Revenue Service rolled out 609 pages of final non-discrimination regulations, containing their understanding of how Congress meant five of the provisions of the Tax Reform Act of 1986 * to operate in practice. The regulators may have also written new law: one provision alone, section 401(a)(4), is five lines while its operating regulations comprise 317 pages.

Employers and pension professionals questioned the need for both the earlier proposed regulations and the 609 pages of final regulations, designed to thwart discrimination in pension plans. There already existed a substantial body of rules developed over many years to do just that, and some fine tuning might have served the same purpose. For example, the new section 401(a)(4) "general test" substitutes three entirely new tests, each replete with restrictions, for the 10-year-old revenue ruling 81-202 "comparability test," whereas Congress merely instructed the IRS to conform the old rules to such TRA 1986 changes as vesting and integration.

One might believe regulators in the IRS and Treasury Department made a careful survey of the 800,000 plans in existence and found an alarming number generating highly discriminatory benefits, despite the long-standing rules. Existing annual limitations on individuals alone -- $90,000 on defined benefits, $200,000 on compensation, $30,000 on employer defined contributions, and $7,000 on elective 401(k) employee contributions, plus cost-of-living increases -- already curb opportunities to discriminate. It would seem the heavier artillery brought to bear in the 609 pages wasn't needed.

Before the draft of the proposed regulations was begun it would follow calculations were made of the cost in time and money that would have to be spent by the regulators drafting the proposed regulations, by employers and their pension professionals studying the proposals and the cost of repeating the process for the final regulations and then implementing them.

The regulators' report containing such analysis surely would spell out the cost, on the one hand, and the benefits to be achieved on the other of the new regulations, while a parenthetical note in a summary would say: It is not possible to estimate the number of plans that will be terminated or that will never get started on account of the new rules, but that number is not expected to be large and is deemed by us to be a small price to pay because of the success the regulations are expected to have in eliminating discrimination.

We can rejoice that we are in such thoughtful hands and eagerly await publication of such an authoritative report by the IRS, which will lay to rest whatever doubts we might have had about the necessity of what I roughly estimate as the $ 5 billion expenditure required by employers for the proposed and final regulations on non-discrimination.

As a corollary, one also might reasonably expect a report has been or will be prepared jointly by the IRS, Department of Labor and the Pension Benefit Guaranty Corp. containing a retrospective analysis of ERISA, MPPAA, TEFRA, DEFRA, REA, TRA 1986 and other tax and benefit laws. The summary will amply demonstrate how these laws and associated regulations have fulfilled their objectives in protecting employees and retirees and thereby justify the disagreeable side effects, including the financial burden to employers of perhaps $ 100 billion to continually update their plans, starting with ERISA, several billion dollars annually of increased costs of plan administration, the discouragement of employers from continuing or starting up plans, the perpetual confusion generated for all including regulatory personnel, and the mounting concern for the accumulating ill-effects of the poorly conceived PBGC.

• Sections 401(a)(4), 401(a)(17), 401(l), 410(b) and 414(s), dealing with non-discrimination and related subjects of compensation, disparity, minimum coverage. Back to paragraph...

- David Langer is president and consulting actuary of David Langer Co. New York,
and chairman of the employee benefits committee of the Actuarial Society of
Greater New York.

Copyright 1992 Crain Communications, Inc., Pensions & Investments, March 2, 1992
Reproduced with permission.