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Guest Article
We strongly support the underlying goal of H.R. 10, the Comprehensive Retirement Security and Pension Reform Act of 2001, to provide a secured retirement for the working men and women of this country. This goal is shared by Members of both parties and is reflected in the level of bipartisan support this legislation has received. Many of the provisions that were included in the original bill in the last Congress, H.R. 1102, are noncontroversial, while others have been improved since the initial date of introduction of the bill. Consequently, H.R. 10 is a more balanced bill than the previous versions. However, we remain concerned about the distributional effect of the benefits under the bill, as well as the lack of strong incentives for small employers to establish plans for their employees.
This legislation provides us with a unique opportunity to respond to the pressing need for adequate and secured retirement savings for all workers. However, the legislation, in its current form, fails to accomplish this goal. Unlike their high-paid counterparts, low- and moderate-income workers would receive little or no direct help in securing adequate retirement savings under the bill. Because there is so much work left to be done in this area, and we must begin now. We cannot allow this opportunity to pass us by.
H.R. 10 should provide additional incentives for increased retirement savings by rank and file workers, as well as additional incentives for small businesses to offer pension plans to their workers. These are two areas which continue to loom over us with an added sense of urgency as we face the imminent retirement of many baby boomers. A significant number from this group will face retirement with no financial resources other than Social Security. They will be forced into a retirement of poverty.
H.R. 10 would make many changes to our current pension system, a system built on the assumption that Social Security must be supplemented by other sources of savings such as employment-based pensions and personal savings. Recent studies have shown that high-paid workers are far more likely to have additional retirement savings. Therefore, we must remain committed to enacting legislation designed to bring more balance into our current system. Adequate retirement savings is important for ALL working Americans.
High-income workers who are currently saving the maximum permitted under our pension laws would receive great benefits from the provisions contained in H.R. 10. Such provisions would increase the limit on annual contributions to a defined contribution plan to $15,000, or annual additions of up to $40,000 for such plans. Workers who are age 50 or older would be able to make an annual contribution of $20,000. Workers participating in a defined benefit plan would receive an annual benefit of up to $160,000. These amounts would increase over time since they would be indexed for inflation.
We believe the option to save for retirement must be offered to ALL workers. This option is too fundamental to creating a secured retirement not to be made available to everyone in our workforce. We must ensure that no segment of our workforce is excluded from the opportunity to secure their retirement.
While H.R. 10 provides significant opportunities for those workers who can most afford to, and currently do, save the maximum amount allowed, it provides few or no opportunities to low- and moderate-income workers. We must continue to work together to improve this aspect of the bill. The pressure to save adequate amounts for retirement affects all workers. We must be committed to responding to these needs in a fair manner.
The first amendment offered by Rep. Richard Neal, and defeated on a party-line vote, would have added an incentive for low- and middle-income workers either to begin saving in a pension plan or to increase their savings for retirement. The amendment would have added to H.R. 10 a Retirement Savings Account (RSA)credit, an important element needed to perfect the underlying bill.
This amendment would have been a good first step in addressing the balance needed in this legislation. It would provide a refundable credit to low- and middle-income workers who participate in either an employer-sponsored plan, or an Individual Retirement Account (IRA). The maximum credit would equal 50 percent of the annual contribution limit, up to $2,000. The credit would be available to all qualifying taxpayers whose adjusted gross income does not exceed certain specified limits.
The RSA proposal does not create a separate savings vehicle. Rather, it works with existing employer-sponsored plans and IRAs. This feature would provide simplicity and ease of administration for plan sponsors. The proposal is designed to promote significant savings among low- and middle-income workers who need it most.
The amendment is intended to provide some help for our most vulnerable workers to save for their retirement. Because many of these workers have not yet begun to save for retirement, we believe a 50 percent credit would go a long way in encouraging them to take that important step. Many of these workers will begin with small account balances, but evidence has shown that the benefit of compounded interest, good investment returns, and a growing account balance will eventually win these workers over to the rewards of continuing to save.
This amendment is necessary for us to meet our goal of a secured retirement for ALL workers. Low-income workers can be brought into our employment-based retirement system only through some method other than the current "do-it-yourself" approach. Evidence confirms that our current system has failed this group of workers. Currently, the median retirement account balance for workers who earn less than $10,000 is a mere $7,500. This represents total savings, outside of Social Security, that must finance their many years of retirement. The numbers are not much better for workers who earn between $10,000 and $25,000. The median account balance for this group is a mere $8,000.
It is clear that our current system is working very well for high-income workers, and this bill would ensure that these workers do even better. The median account balance for workers who earn $100,000 is $93,000. More important, this generally is not the only source of retirement savings for this group of workers.
In addition to inadequate savings, actual participation in employer-sponsored plans is low among low- and middle-income workers. Recent statistics reveal that the participation rate for workers who earn between $10,000 and $25,000 is 25 percent. However, it is clear that participation increases with income. Workers who earn between $25,000 and $50,000 have a participation rate of fifty-eight percent. These numbers tell us that among low-income workers, 3 out of every 4 workers do not participate in a pension plan. This paints a very grim picture for these workers and their retirement. If we fail to enact legislation that would address these needs, we would have failed these workers.
H.R. 10, in its current form, would continue this skewed distributional impact of our pension system. Under the bill, 76.9 percent of the benefits from contribution limits and benefit increases would accrue to the 20 percent of workers with the highest incomes. On the other hand, the 20 percent of workers with the lowest incomes, less than $14,000, would receive 1 percent of the benefits. We must make take every step necessary to turn this around. We cannot afford to enact legislation that would leave any worker behind.
The refundable aspect of the RSA credit is a key feature in reaching this group of workers. We believe this credit would do a better job of bringing more low- and middle-income workers into our current retirement system. Receiving a credit of up to $1,000 would go a long way in enabling these individuals to continue contributing annually to their pension plans. We believe the RSA proposal would have accomplished the goal of extending to all American workers the opportunity to establish a more financially secured retirement.
The second amendment offered by Rep. Neal would have provided additional incentives to small businesses to offer pension plans to their workers. The incentives would have been provided through two tax credits for small employers. This amendment also was defeated along a party-line vote.
The amendment would provide a 50 percent tax credit to small employers for up to $2,000 of their start-up costs associated with establishing and administering pension plans for their employees. This credit would be available for the first three years of the plan. The amendment also would provide eligible small employers with a 50 percent tax credit for certain employer contributions, up to 3 percent of compensation, made to a plan on behalf of its non-highly compensated employees.
It is critical that we improve plan sponsorship among small employers because this is an important link to expanding coverage for workers currently without coverage. Small employers (100 or fewer employees) currently employ 38 million workers, yet less than 33 percent of these businesses offer a retirement plan. These workers deserve the same retirement security as their counterparts who work for large companies, but pension coverage for these workers continues to lag far behind coverage for employees of large businesses.
In a recent Small Employer Retirement survey conducted by the Employee Benefit Research Institute (EBRI), 65 percent of small employers not currently offering a pension plan listed the availability of tax credits as a significant factor in their decision on whether to offer a pension plan. The availability of tax credits was second in significance only to an increase in business profits. Sixty-five percent is a very substantial number. With this compelling evidence, we are convinced that adopting the tax credits included in the Amendment is the right thing to do.
We are all aware of how small employers struggle in this business economy to attract and retain quality employees. They can succeed in this effort only if they can compete effectively with large businesses. The ability of small employers to offer pension benefits is an important element in this process and is as valuable to them as it is to large businesses. The unique challenges small employers face make effective competition more difficult. We must do what we can to provide a level playing field for all businesses in the retirement benefits area.
In its current form, the legislation would fail to provided a secured and adequate retirement for ALL Americans. In addition, the bill can do more to expand pension coverage to the employees of small employers. We must continue to work in a bipartisan manner to meet these goals.
Charles B. Rangel (NY)
William J. Jefferson (LA)
John Lewis (GA)
Lloyd Doggett (TX)
Karen L. Thurman (FL)
Jim McDermott (WA)
Xavier Becerra (CA)
Robert T. Matsui (CA)
William J. Coyne (PA)
Richard E. Neal (MA)
Dissenting Views of Congressman Pete Stark On H.R. 10, the Pension Reform Bill
May 1, 2001
Although the idea behind H.R. 10 is to expand pension availability to low- and moderate-income workers, this bill misses its mark completely. Nearly 70 percent of the IRA contribution changes accrue to taxpayers in the top 20 percent income group while only 0.1 percent of the IRA provisions accrue to workers in the bottom 20 percent income group. The provisions in the bill with respect to the pension portability and Section 415(b), multi-employer pension plans[,] are welcome changes. However, these changes comprise less than 2 percent of the bill's total cost. This is not enough to offset the potential limits H.R. 10 imposes on access to pensions for small business employees.The Washington Post says it best in the attached opinion editorial (Sunday, April 29, 2001), A Miserable Pension Bill. I agree with the editorial that this bill ought not to pass.
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