The Pension Protection Act & the National Employee Savings and Trust Equity Act (NESTEG)

September 2005:

Legislation currently being considered by Congress would make some substantial changes to how pensions are governed and protected. The plan in the House of Representatives is H.R. 2830, “The Pension Protection Act.” The Senate plan is S. 219, “The National Employee Savings and Trust Equity Act” (or “NESTEG.”)

The changes will undoubtedly make a difference. They should keep all employees better informed about the health of their pension, and also improve financial disclosure.

But other intended effects of these changes will be unevenly felt, much more so in some industries (those with Single Employer Plans) than in others (those with Multi Employer Plans).

For Single Employer Plans (sometimes called “Company Plans” – a reference to the fact that employing companies typically have control of most plan decisions), the proposed changes introduce new funding requirements designed to give employers incentives to adequately fund pensions, and to speed up contributions to underfunded plans.

Both plans include measures that seek to restore financial health to the Pension Benefit Guaranty Corporation by increasing annual insurance premiums paid by pension plans.

The House plan includes a structure for identifying Multi Employer Plans that are in trouble, using a “Red, Yellow and Green” rating system. But some critics have suggested that the leading Congressional proposals fall short when it comes to the important question of “orphans” in Multi Employer Plans – workers in plans where companies have either gone bankrupt or made promises to employees they are in no position to keep. Multi Employer Plans are sometimes referred to as “Union Plans” because they are more often than not controlled by union leaders.

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