Few Private CEOs Know About 2006 Pension Reform Act
Only four percent of the 309 CEOs surveyed said they are very knowledgeable and 23 percent said they are somewhat knowledgeable, but 61 percent admitted that they knew little about the new law.
“The lack of knowledge regarding the new guidelines means that these “Trendsetter” companies are not taking advantage of the opportunity to provide employees with the best options available to help them save for retirement,” said Paul Bracaglia, investment advisory partner with PwC’s Private Company Services.
Nearly all of their companies currently offer 401(k) plans – 85 percent, with seven percent offering a defined benefit plan. But only five percent of the “Trendsetter” companies intend to use the automatic enrollment feature allowed by the new act. Sixteen percent have made the decision not to use the feature.
Where companies do have a formal Investment Policy Statement (IPS), most (92 percent) have reviewed their policy within the past two years. Emphasizing the importance of drafting an IPS, Bracaglia noted that “At its most basic level, the IPS creates a document that details how the company has designed the plan, how the company intends to comply with ERISA requirements and . . . how the company aims to manage the plan on an ongoing basis.”
In companies where the CEO/COO is the fiduciary of the 401(k) plan, (66 percent of the “Trendsetter” companies), the fiduciary reported that he or she was aware of personal liability risks. Where the fiduciary officer is someone other than the CEO, there is uncertainty about liability. “Any plan fiduciary should be aware of and assess the sufficiency of insurance coverage since there is potential exposure to their personal assets. Additionally, a fiduciary should ensure that he or she is taking the proper steps on an ongoing basis...including maintaining any reports generated by outside advisors and minutes of periodic meetings regarding the retirement plans.”
CEOs of the companies surveyed who are familiar with the provisions of the Pension Reform Act believe that adopting the retirement options allowed by the law will make their companies more competitive in attracting and retaining employees. Yet despite widespread publicity about the new 401(k) rules and investment guidelines, most of the CEOs surveyed remain uncertain about any benefits to their companies from the new legislation.