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This could be the year that retirement
reform proposals finally become law. A bill that could allow Americans to boost their
tax-deferred savings and catch up for years when they skimped may actually pass through
Congress and be signed by the president.
With a new administration trying to foster a
cooperative spirit, this bill, which was first proposed in 1998 and already has support on
both sides of the aisle, stands a good chance of becoming law, Washington observers say.
The new administration may also bring a new
approach to retirement savings, placing a greater emphasis on individual responsibility.
The power shift in Washington will be complete when George
W. Bush is sworn in as president on Saturday, Jan. 20. A new Congress was sworn in earlier
this month.
Changing 401(k) and IRA rules was ignored in the 2000
presidential election campaigns, while Social Security emerged as a big issue.
In Congress, reforming private pension rules, those that
govern 401(k), 457, and 403(b) plans and IRAs, has strong support in both parties; but,
because of partisan bickering, the bill never made it to President Clinton's desk. Where
does that leave this issue in the coming political year?
Likely to pass, say Capitol Hill watchers. But, nothing is
a done deal at this point. Here's a snapshot of how incoming politicians are likely to
view retirement security issues.
Private Pension Reform
One of the reasons private pension reform wasn't a campaign
issue is that it's not controversial. Almost everyone in Congress thinks it's a good idea,
and so did both presidential candidates, Bush and Vice President Al Gore.
Case in point, in July 2000, the House of Representatives passed
retirement reform legislation by a whopping 401-to-25 margin. The bill, sponsored by
Rep. Rob Portman, R-Ohio, and Rep. Benjamin Cardin, D-Md., proposed, among other things,
to raise 401(k), 403(b), 457 and IRA contribution limits, index those limits to inflation,
allow for catch-up contributions, and to make it easier for workers to shift money between
plans as they change jobs. Specifically, 401(k) and 403(b) contribution limits would rise
over time to $15,000 a year and IRA limits would rise to $5,000 a year.
The legislation, however, is likely not to include special
provisions for low-income workers or a reform of cash-balance plans. Those issues are
expected to be addressed separately.
Unfortunately, the bill fell victim to partisan bickering
and failed to pass the Senate.
Portman is expected to reintroduce his legislation
early this year, said Brian Besanceney, a Portman spokesman. "We'll be introducing
(it) ... hopefully in the next few weeks and we hope it will enjoy the same level of
bipartisan support that it enjoyed in the last Congress," he said.
A widely held view among the major pension lobbying groups
is that the Portman-Cardin legislation will be passed this year. With the federal
government running a surplus, cost is not likely to be an issue. So, the question is not
"will the legislation pass" but rather "when will it
pass?"
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"Retirement reform is high on the
B-list and we need to move it to the A-list."
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— Edward
Ferrigno, vice president of Washington affairs with the Profit Sharing/401(k) Council of
America.
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The answer depends on the Bush legislative agenda. Where
retirement reform falls on that list may dictate how soon the legislation is passed. It
may not be a high enough priority to stand on its own. If so, that means it could be
tacked on to another piece of legislation; which, like in the past, could be a factor in
keeping it from being passed.
Currently, "retirement reform is high on the B-list
and we need to move it to the A-list," said Edward Ferrigno, vice president of
Washington affairs with the Profit Sharing/401(k) Council of America, a group representing
employers offering 401(k) and profit-sharing plans.
Editor's Note: In a related development, on Jan. 12, the
Treasury Department issued new regulations simplifying required minimum distribution
rules. By reducing the dollar amount of annual required distributions in most cases, these
rules will likely help Americans preserve their nest eggs further into retirement. While
they are different from the proposed measures in Portman-Cardin, the new regulations
should also serve to make retirement planning easier for many Americans.
The Politics
In 2000, retirement reform was a popular issue among both
parties. Why did it fail? Politics.
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"I think (the Bush
administration) will be a more favorable audience (for Portman-Cardin) than we had under
the Clinton administration."
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— Brian
Besanceney, spokesman for Rep. Rob Portman, R-Ohio.
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The bill passed the House in July but by the time the
Senate got around to addressing it in September, the elections were only two months away
and a few controversial amendments had been tacked on. While retirement reform had
bipartisan support, few senators were willing to vote on it so close to the election
because of the tough-choice amendments, Ferrigno said. And, on top of all of that, there
was a bitter division between congressional Republicans and President Clinton. It was a
recipe for gridlock.
This time should be different. The House remains committed
to the bill, the White House seems to welcome it and, with the election past, the
divisions in the Senate have mostly evaporated.
"I think (the Bush administration) will be a more
favorable audience (for Portmin-Cardin) than we had under the Clinton
administration," Besanceney said. "It's the type of relief that we think ... is
philosophically consistent with some of the other proposals that we have seen from the
Bush administration."
This year, Bush comes to Washington pledging to nurture cooperation
between the White House and Congress and among the political parties. He needs to take
this approach given his controversial narrow victory. And, Capitol Hill watchers say some
early legislative victories could give the Bush administration a needed boost.
The new administration is expected to push for early
repeals of the estate tax and "marriage penalty" tax. Retirement reform is
likely to be added to Bush's proposed $1.3 trillion across-the-board tax cut.
With the economy showing definite signs of slowing,
Republican congressional leaders, who just a few weeks ago were urging the Bush
administration to go slowly, are now pushing for quick passage of a full tax cut
and to include retirement reform. Even Democrats, who have balked at tax cuts, have
signaled a willingness to negotiate.
Changing Philosophies
With the changing of the guard in D.C., Americans are also
likely to see a slight shift in the underlying philosophies as new leaders begin to
dictate retirement policy.
Key chairmanships in the House and Senate will have new
faces.
In the Senate, the Finance Committee deals with retirement
reforms. Outgoing Sen. William Roth, R-Del., is being replaced by Sen. Charles Grassley,
R-Ia.
This change will represent a significant shift in
philosophy concerning the method of delivery of retirement benefits, notes Dallas
Salisbury, president of the Employee Benefit Research Institute.
Roth was a supporter of individual retirement arrangements
(IRAs) and created one that bears his name. Grassley, on the other hand, is a fan of
employer-delivered retirement benefits, Salisbury said.
Grassley does, however, support passing Portman-Cardin, a
Grassley spokeswoman said.
In the House of Representatives, retirement reforms come
from the Ways and Means Committee. Portman and Cardin will retain their seats on the
Committee, and Committee Chairman Rep. Bill Archer, R-Tex., has retired and will be
replaced by Rep. Bill Thomas, R-Calif.
In past remarks, Thomas has favored individual accounts to
deliver medical benefits. That means he might favor IRAs over employer-sponsored
retirement plans, Salisbury speculated.
Among the Democrats, there have been fewer changes as the
voters returned most of the key players to office.
Another significant philosophical shift is likely to take
place in the White House, Salisbury predicts.
The Bush economic team is led by former Federal Reserve
Board member Lawrence Lindsey. Historically, Lindsey has favored individual choice. In the
past, he has spoken about replacing income taxes with a consumption tax and reducing the
reliance on employer-sponsored retirement plans with a super IRA, allowing a
$30,000 maximum annual contribution.
The outgoing Clinton administration supported
employer-sponsored plans.
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"If the market stays south, it
will be hard to convince people that Social Security should become more of a
roll-the-dice-in-the-stock-market type of arrangement."
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— Martha
Priddy Patterson, analyst, human capital advisory services, with Deloitte & Touche.
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Social Security
The surprise of the 2000 presidential election was that the
candidates grabbed on to the "proverbial" third rail of politics, Social
Security, and didn't get electrocuted.
Bush proposed allowing Americans to invest some of their
Social Security contributions in individual accounts.Yet, he gave few details of
how this would work. His proposal is based on one offered a few years ago by former Sen.
Patrick Moynihan, D-N.Y., and others.
Instead of offering a quick a solution, some observers
expect Bush to deliberate on the issue.
"There's a feeling that this is such a large issue, it
doesn't make sense to pursue it out of the box," said James Delaplane, vice
president, retirement policy, with the American Benefits Council.
The one concrete campaign promise he made was to appoint
a commission to study the issue. Those appointments are expected some time this year.
While the political climate is improving, it may not
support rapid Social Security reform. The weak stock market could cool enthusiasm for
individual accounts.
"If the market stays south, it will be hard to
convince people that Social Security should become more of a
roll-the-dice-in-the-stock-market type of arrangement," said Martha Priddy Patterson,
analyst, human capital advisory services, with Deloitte & Touche.
Concrete proposals aren't likely to surface until after the
2002 elections, when congressional Republicans hope to widen their margin of power. |
