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Charles Crain

House Tax Package Includes NAM-Supported Pension Reforms

By | Shopfloor Policy, Taxation | No Comments

In late November, House Ways & Means Chairman Kevin Brady (R-TX) unveiled a package of tax extenders and technical corrections to last year’s landmark tax reform legislation. Included in the bill is a pension provision that will make it easier for manufacturers to offer competitive retirement benefits to their employees.

When companies transition from a traditional defined benefit (DB) pension plan to a defined contribution (DC) 401(k) plan, many businesses grandfather longer service employees into the existing DB pension and offer the new 401(k) only to new employees. This allows existing employees to remain in their long-standing pension plan as they near retirement.

This approach, called a “soft freeze,” allows companies to provide competitive retirement benefits to all employees, regardless of their tenure. However, over time these plans can trigger IRS nondiscrimination rules as the employees in the DB plan continue to increase in both time served and compensation relative to the newer employees in the DC plan. This can lead to companies being forced to institute a “hard freeze” on the plan, meaning that employees miss out on their prime years of benefit accruals.

Chairman Brady’s legislation provides an alternative solution that would modify the nondiscrimination rules to allow plan sponsors to protect grandfathered employees when transitioning from a DB to a DC plan structure. Provided that the plan does not violate any nondiscrimination rules when it is set up and no significant changes are made going forward (other than changes in employees’ employment status and/or compensation), it would not violate nondiscrimination rules as the longer service DB employees advance through their career.

This targeted reform would prevent companies from unintentionally violating the nondiscrimination rules, allowing manufacturers to compensate employees competitively and attract talent in a tightening job market. The NAM signed a coalition letter supporting this change, which is modeled after bipartisan legislation introduced by Reps. Pat Tiberi (R-OH) and Richard Neal (D-MA) and Sens. Rob Portman (R-OH) and Ben Cardin (D-MD). The NAM will continue to advocate for this important reform as the tax bill moves through Congress.

NAM Drives the Agenda for SEC Proxy Roundtable

By | General | No Comments

Large institutional investors help Americans invest for retirement by managing their life savings and making proxy voting decisions on behalf of the millions of Americans with shares in a mutual fund, 401(k) or pension plan. Yet, these fund managers, duty-bound to act in middle-class Americans’ best interests, have instead been relying on unregulated, conflicted “proxy advisory firms” to shape these important decisions.

In a new comment letter submitted to the Securities and Exchange Commission (SEC) this week, the National Association of Manufacturers lays out the many flaws intrinsic to the proxy advisory firm business model and urges the SEC to take action to ensure that investment managers are acting in Main Street investors’ best interests when making proxy voting decisions.

Proxy firms have expanded their influence in recent years, and they are not shy about using their power to impact public company decision-making. Yet, their one-size-fits-all view of the world does not always align with what is best for manufacturers or Main Street investors, and their recommendations to investment managers are often riddled with errors and conflicts of interest.

The SEC is hosting a roundtable on the proxy process in November, and a key discussion item will be the role that proxy firms play in the marketplace given the outsized influence these firms have on company decisions that impact the savings in millions of Main Street investors’ retirement accounts. In our comment letter, we call for targeted reforms that would allow proxy firms to continue to provide advice to investment managers—but under increased oversight from the SEC and improved due diligence from institutional investors.

By taking concrete action to address these important issues, the SEC can ensure that investment managers, proxy firms and public companies alike remain exclusively focused on delivering returns for middle-class Americans investing for a child’s education, a new home or a secure retirement.

Labor Department Takes Significant Step to Reduce the Cost of Retirement Plans for Small Manufacturers

By | Shopfloor Main | No Comments

Earlier this year, President Donald Trump issued an executive order requiring the Department of Labor (DOL) to take steps to expand the ability of small businesses to join with other companies to offer a single retirement plan for their employees, effectively reducing the cost of offering retirement benefits. Today, the DOL released a proposed rule to implement the executive order and enable small businesses to join with industry or local partners via a business association to offer retirement benefits to their employees.

A manufacturer that wants to offer its employees retirement benefits must address substantial administrative costs associated with such plans, which makes it difficult for small businesses to offer these benefits. In fact, less than half of American workers at companies with fewer than 50 employees have access to a workplace retirement plan.

The DOL’s proposal would reduce costs by allowing similarly-situated small businesses (connected by either geography or industry) to band together through a trade association or local business group to offer a single retirement plan, thus benefiting from economies of scale.

While additional rulemaking from the Treasury Department is necessary to fully implement these “pooled” retirement plans, the DOL’s action is a significant step toward allowing small manufacturers to use competitive 401(k) plans to attract talent in a tightening labor market. It’s also fantastic news for manufacturing workers. The higher fees charged by administrators of small employer plans can cut nearly 1 percent off a worker’s retirement savings. Compounded over a lifetime of investing, that’s a significant loss, which will be eliminated under the new rule. That’s a win for manufacturing workers across the country.

SEC Withdraws Proxy Firm No-Action Letters

By | General, Shopfloor Main | No Comments

Investment advisers owe a fiduciary duty to the middle-class Americans whose retirement accounts they manage. Their decisions on how to vote an investor’s shares in corporate proxy contests must be guided by the investor’s best interests. But how can an investment adviser guard against any conflicts of interest that he or she may have and ensure that all proxy voting decisions are made in the best interest of the investor? It’s a good question, and one that helps explain why actions taken last week by the Securities and Exchange Commission (SEC) are so important.

Back in 2004, the SEC issued two so-called “no-action” letters that allowed investment advisers to simply outsource proxy voting decision-making to third-party proxy advisory firms to mitigate their own potential conflicts of interest. What those no-action letters failed to account for, however, were the many shortcomings and, worse, conflicts of interest embedded in the proxy advisory firms’ business models.

The practical effect of the no-action letters was, for more than a decade, to entrench and empower these unregulated, black box proxy advisory firms. Millions of Main Street investors are unaware that these important decisions have been outsourced to conflicted third parties, so the National Association of Manufacturers (NAM) has for years called on the SEC to withdraw the 2004 no-action letters. Last week, that’s just what the SEC did.

The SEC’s decision will restore the primacy of a fund manager’s fiduciary duty to protect investors’ retirement savings and also reduce proxy firms’ influence over manufacturers and the important decisions that guide company growth, job creation and economic expansion in America.

NAM President and CEO Jay Timmons released a statement last week praising the decision and calling for further oversight of proxy firms. The SEC’s announcement is a precursor to further discussion of these important issues at its proxy roundtable in November, where the NAM will continue to advocate corporate governance policies that bolster capital formation for manufacturers and strengthen the long-term interests of Main Street investors.

NAM Submits Comment to Pension Reform Committee

By | Shopfloor Policy | No Comments

The National Association of Manufacturers (NAM) represents the more than 12 million men and women who make things in America. Many of these workers are participants in what are known as multiemployer pension plans, and they are counting on these pension benefits for the safe and secure retirement they’ve earned. Yet, there is a looming crisis that carries potentially dire implications for millions of retirees as well as devastating consequences for thousands of businesses across the country. This is a problem that demands the right solutions, and quickly, and that is exactly why the NAM today submitted recommendations to the special committee in Congress charged with doing so.

Congress established the Joint Select Committee on Solvency of Multiemployer Pension Plans to find a solution to the multiemployer pension crisis. The crisis arose as the Great Recession cratered the holdings of longstanding pension plans and baby boomers began retiring en masse, so multiemployer pensions began having to pay more in benefits out of a decimated investment pool. The backstop that Congress created in 1974 to support retirees and workers in this type of pension crisis, called the Pension Benefit Guaranty Corporation (PBGC), is instead now teetering on the edge of insolvency itself.  The combined impact of failing multiemployer plans and an insolvent PBGC Multiemployer Program is serious and, in the absence of congressional action to solve the problem today, could soon prove devastating for millions of Americans. That’s especially true for the 10 million participants and their families who rely on more than 1,400 plans in the multiemployer pension system.

This is why the NAM acted today to urge the Joint Select Committee to address the urgent, and worsening, multiemployer pension crisis. As we laid out in our letter, we believe that policymakers have a unique and historic opportunity to put the multiemployer pension system on a path to stability. And, by adhering to a few core principles, such as working expeditiously to address the urgent problems facing the system, crafting a comprehensive multiparty solution and protecting the healthy single-employer system throughout the process, we believe they can.

This is a huge challenge, but the Joint Select Committee and Congress can solve it. A comprehensive, bipartisan solution is within reach. So we urge policymakers to meet the moment with the swift, comprehensive and appropriate action that this crisis demands.

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