Pension 401(k) bill passes House


WASHINGTON -- In a bid to boost private retirement savings, the House overwhelmingly approved a bill yesterday that would encourage employers to offer or retain pension plans and increase incentives for workers to save on their own as well.

The 401-25 vote sends the bill to the Senate, where its success might depend on end-of-the-year negotiations with President Clinton, who is seeking additional provisions to help low-wage workers.

At a cost of $52 billion over 10 years, the measure is designed in part to reduce congressionally imposed restrictions that critics blame for a decline of more than 50 percent in the number of pension plans offered over the past decade.

"You can't make it on Social Security alone, you have to have other assets," warned Rep. Benjamin L. Cardin, a Baltimore Democrat and one of two prime sponsors of the bill. "This will stop the erosion of private pensions and encourage workers to put aside the extra money they're going to need."

The measure would aim several new benefits directly at employ- ees, including gradually raising the annual ceilings on tax-free contributions to individual retirement accounts to $5,000 from $2,000 and on annual contributions to 401(k)plans to $15,000 from $10,500.

Further, the bill would make it easier to transfer pensions from one job to another, and allow parents who return to the work force to make "catch-up" contributions to pension funds and IRAs.

"As a nation, we borrow more than we save. We have to encourage Americans to save more," said House Ways and Means committee Chairman Bill Archer, a Texas Republican. "This is the right legislation at the right time."

All seven other members of Maryland's House delegation voted with Cardin in favor of the bill.

Many Democrats complained that the legislation offers most of its benefits to the affluent and largely ignores low-wage workers who can't afford to contribute to a savings plan. They proposed adding a program that would provide 50 percent tax credits for workers earning up to $75,000 a year who put money into a retirement plan.

"The problem is not what's in the bill, but what's left out," said Rep. Earl Pomeroy, a North Dakota Democrat. "We're proposing an Uncle Sam match: you save $2,000, you get a $1,000 credit." For some low-income earners, the credit could amount to a cash refund.

The proposed Democratic addition, which would have doubled the cost of the bill, was defeated along party lines. But Cardin said he expects new benefits for low-wage earners if a final version of the bill emerges in the fall from negotiations with the White House.

Cardin said that when he and Ohio Republican Rob Portman began working on the legislation three years ago they had not anticipated that the federal budget surplus -- now estimated at more than $2 trillion over 10 years -- would grow as swiftly as it has.

"We would have put something in for low-wage workers if we had known there was going to be this much money available," Cardin said.

He argued, however, that the bill as passed by the House helps all workers to the extent that it encourages employers to offer or retain defined benefit pension plans.

According to Portman, the number of businesses offering traditional pension plans that guarantee a specific monthly benefit to qualified retirees has dropped from 114,00 in 1987 to 45,000 in 1997.

Half of the national work force, about 70 million people, has no pension coverage, he said.

Portman and Cardin argued that one reason for the decline in private pensions is the administrative cost and complexity of the current pension laws. They also contend that Congress erred by steadily reducing the tax-deductible amounts that employers can contribute to such plans and the amount of total benefits they can provide for their employees.

The Portman-Cardin bill would simplify the administrative requirements and raise the maximum amount of tax-deductible dollars that employers can contribute to pensions, and increase the size of pensions they can fund.

In provisions aimed more directly at workers, the bill would shorten the vesting period to become eligible for pension benefits and allow "catch-up" pension and 401(k) contributions of up to $5,000 for workers age 50 and older.

The White House released a statement before the vote saying the president "strongly opposes" the measure because it is tilted to higher-income individuals instead of more needy workers.

"The approach of passing large tax cuts, when those tax cuts are not paid for, unwisely abandons fiscal discipline," the White House statement said.

"Pension legislation must be considered in a framework that guarantees that important national priorities -- such as providing affordable prescription drug coverage and rebuilding our crumbling schools -- are met."

More specifically, the White House complained that raising the limits on pensions would help primarily business owners and corporate executives, perhaps to the detriment of low-wage workers.

The White House also observed that only 5 percent of workers who participate in 401(k) plans make the maximum contribution and only 4 percent of taxpayers make the maximum $2,000 annual IRA contribution.

"A better approach," the White House statement said, is to provide tax incentives to low- and moderate-income workers.

Few lawmakers seem to take seriously the threat from Massachusetts Democrat Richard E. Neal that Clinton would veto the bill.

"He's not going to veto this bill," Cardin predicted.

IRA-401(k) bill

Elements of a House-passed bill that boosts limits on contributions to individual retirement accounts and 401(k) plans, estimated to cost $52.2 billion over 10 years:

IRA provisions

Would raise limits for traditional and Roth IRAs from $2,000 now to $3,000 in 2001, $4,000 in 2002 and $5,000 in 2003. Indexed for inflation thereafter.

For individuals ages 50 and older, would raise limit to $5,000 in 2001.

401(k)-type provisions

Would boost maximum annual tax-deferred contributions from $10,500 now to $11,000 in 2001, $12,000 in 2002, $13,000 in 2003, $14,000 in 2004 and $15,000 in 2005. Indexed for inflation thereafter. Would also increase limits on employer matching contributions.

For individuals age 50 and older, contribution limits would rise to $16,000 in 2001, $17,000 in 2002, $18,000 in 2003, $19,000 in 2004 and $20,000 in 2005.

Other provisions

Vesting requirements for employer pension matching contributions would be reduced from five years to three years.

Would raise limit on deductions for several kinds of defined contribution plans to 20 percent of compensation.

Would make it easier for employees to roll over retirement assets when they change jobs.

Would simplify regulations to encourage more businesses to offer pension plans.

Would increase from 15 percent to 20 percent the deduction limit for stock bonus and profit-sharing plans.

Source: Associated Press

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