July 19, 2000
H.R. 1102 - Comprehensive Retirement Security and Pension Reform Act
The Administration strongly opposes H.R. 1102, the Comprehensive Retirement
Security and Pension Reform Act, as proposed to be amended by the Committee
on Ways and Means (text of H.R. 4843). The Administration is strongly
committed to strengthening retirement security for all Americans.
Unfortunately, H.R. 1102 is not the right approach. Legislation to expand
retirement savings must address the fundamental problem that 75 million
Americans are not covered by any employer-sponsored retirement plan. H.R.
1102 ignores this fact. Indeed, it contains provisions that may lead to
reduced retirement security for rank-and-file workers.
(Portman (R) Ohio and 193 cosponsors)
The approach of passing large tax cuts seriatim, when those tax cuts are
not paid for, unwisely abandons fiscal discipline. Pension legislation
should be considered in a fiscal framework that guarantees that important
national priorities -- such as providing affordable prescription drug
coverage and rebuilding our crumbling schools -- are met, and that protects
the Federal Government's ability to extend the life of Medicare and Social
Security and pay down the debt. In that context, the Administration would
like to work with Congress to build on the current system to help all
Americans to save for retirement.
H.R. 1102 does include a number of provisions that would make a valuable
contribution to the improvement of the employer pension system. Indeed,
the President's budget incorporates a number of the proposals either intact
or in different forms, including provisions to increase portability of
retirement plan accounts. But various other provisions of H.R. 1102 are
counterproductive. For example, H.R. 1102 would raise the maximum amount
of business owners' and executives' compensation that can be considered for
contributions under a retirement plan, a provision that would benefit only
one percent of employees, and would weaken the pension anti-discrimination
and "top-heavy" protections for many moderate- and lower-income workers.
Provisions such as these could lead to cuts in retirement benefits for
moderate- and lower-income workers, while benefits for highly paid
executives are maintained or even increased. This would be particularly
unfortunate in light of the severe disparity in the adequacy of retirement
savings for moderate- and lower-income workers as compared to high-income
individuals. Currently, two-thirds of pension tax expenditures go to
families in the top 20 percent of the income distribution, while only two
percent goes to families in the bottom 40 percent.
In addition, H.R. 1102 would raise the contribution limits for
employee-financed savings vehicles such as 401(k) plans and IRAs.
Currently, fewer than 5 percent of 401(k) plan participants make the
maximum allowable contribution and only 4 percent of taxpayers contribute
the annual maximum $2,000 to an IRA. These increases could lead to a
displacement of traditional employer-financed pensions in favor of such
employee-financed vehicles, shifting the burden of initiating retirement
saving onto workers. These self-financed vehicles historically have had
lower participation rates for lower- and moderate-income workers, for whom
saving is hardest and who derive little or no benefit from existing tax
incentives. Thus, the limit increases would not significantly increase
plan coverage or national savings.
A better approach is to enact pension and retirement savings incentives to
reach the tens of millions of working Americans who do not participate in
employer-provided pension plans and have little or no other retirement
savings. The President's budget proposals would provide enhanced
incentives for employers to cover such workers. The Retirement Savings
Account approach would provide progressive tax incentives for moderate- and
lower-income workers to contribute to employer plans and IRAs. Similarly,
the proposed small business tax credit for employer contributions to
qualified plans on behalf of non-highly compensated employees would target
benefits to those who need them most. This approach builds on the current
system to expand access rather than conveying additional benefits to those
who already have adequate retirement savings.
The importance of protecting workers' retirement benefits has been
demonstrated also in the context of conversions to cash balance pension
plans. The Administration believes that legislation imposing meaningful
disclosure requirements, such as the Administration's proposal which
received strong bipartisan support last year, and a prohibition on cash
balance wear-aways -- both normal retirement benefits and early retirement
benefits -- should be enacted, and should be a part of any broad-based
retirement savings legislation. H.R. 1102 fails to require adequate
disclosure and does not call for any additional protections for workers
affected by cash balance conversions.
The Administration also strongly opposes any provisions that would weaken
protections for participants by allowing biased investment advice from
persons with a conflict of interest, or provisions that would otherwise
weaken our ability to protect workers' pension and health benefits.
H.R. 1102 would affect receipts; therefore, it is subject to the
pay-as-you-go requirements of the Omnibus Budget Reconciliation Act of
1990. The Administration has not yet completed its estimates of the costs
of the bill; however, based on the estimates of revenue losses made by the
Joint Committee on Taxation ($1.1 billion for FY 2001 and $16.1 billion for
FYs 2001-2005) , the absence of any offsets to H.R. 1102 could cause a
sequester of Federal resources.