Pension lawyers, actuaries, consultants and activists have begun mapping out what they say could be an even bigger task for Congress than health care reform: developing a national retirement policy.
At issue, they say, are the anticipated shortfall in the Social Security trust funds to cover payments to millions of older Americans in a few decades, the decline in the number of traditional pension plans and the lack of universal coverage for all American workers - as well as the nation's skimpy savings rate and the changing demographics of the work force.
Even more worrisome, experts say, is a lack of a cohesive national retirement policy allows pension issues to be controlled by tax considerations rather than good sense.
"It is now crystal clear that the existing system, which includes Social Security, private sector pensions and personal savings, needs to be readjusted to reflect changing work patterns in the United States," said Steven J. Sacher, partner at the Washington law firm of Johnson & Gibbs, and a former associate solicitor for pensions at the Labor Department.
To ensure an orderly review of the various elements of the retirement picture - the private pension system, Social Security, tax laws, personal savings and changes in the composition of the American work force - some groups, notably the American Society of Pension Actuaries, are calling for Congress to set up a national commission to study retirement issues. Some $600,000 already has been set aside for a commission under a 1992 law, subject to congressional approval of such a body.
To be sure, the starting point for the debate over a comprehensive national retirement policy is likely to be the Social Security system. Its acute problems became apparent after its trustees last month warned money in the trusts would run out seven years sooner than previously expected (Pensions & Investments, April 18, 1994).
Already, then-House Ways and Means Committee Chairman Rep. Dan Rostenkowski, D-Ill., and Rep. J.J. Pickle, D-Texas, head of the House oversight subcommittee, in April introduced bills to fix the Social Security system by gradually raising the retirement age, cutting cost-of-living increases for those already drawing Social Security benefits and raising payroll taxes to pay for benefits to baby boomers. Neither bill is expected to be taken up by Congress in the current session. And Rep. Pickle is retiring at the end of the year. But, legislative aides say the bills were intended to put the issues on the table.
What's more, a presidential commission set up last fall to examine entitlement programs and tax reform is scheduled to issue its report to the National Economic Council and Congress in December, around the same time as an advisory council to the Social Security Administration is expected to make its recommendations.
Also, several trade groups - including the American Society of Pension Actuaries, the ERISA Industry Committee, the Profit Sharing Council of America, and the American Academy of Actuaries - have formed their own task forces to develop recommendations for overhauling the retirement system. Even the congressional Joint Economic Committee is looking at the issues.
Meanwhile, Sen. Howard Metzenbaum, D-Ohio, who is leaving Congress at the end of the year, earlier this month introduced a "pension bill of rights" that would open up company pension plans to all workers and provide immediate vesting for participants in defined contribution plans. Sen. Metzenbaum's bill also recommends the Labor Department establish a task force to study ways to improve pension coverage and adequacy.
"The Social Security situation will increase the focus on the overall retirement issue," said a senior government official who spoke on condition of anonymity. "Sometime in the next few years there will be a thorough review and something will be done, but whether it is retirement reform, and how comprehensive, people don't have a clue."
Any review of the nation's retirement picture also likely will weigh in heavily on U.S. tax policies, which have framed pension laws since the federal budget deficit soared in the early 1980s. Pension experts at a recent Harvard University conference attempted to steer the debate away from tax implications of the private pension fund system toward building a comprehensive retirement policy that can stand on its own merits.
Because of the vast budget deficit, "right now there's a tremendous pressure from tax-writing committees (in Congress) to continue tinkering with retirement issues," said Michael Davis, a fellow at Harvard University's John F. Kennedy School of Government, who organized the conference. "That can't continue," said Mr. Davis, former president and chief executive of The Wyatt Co., Washington.
Sylvester J. Schieber, Wyatt's research director, concurs.
In a new study presented at the Harvard University conference, Mr. Schieber suggested the U.S. Treasury's method of calculating the loss in revenue because of preferential tax treatment given employer contributions to pension funds is flawed.
In the government's latest budget, Treasury officials estimate the federal government's loss from pension fund subsidies at $48.8 billion in fiscal 1994, with another $9.1 billion lost from the tax-deferred treatment of individual retirement accounts and Keogh plans.
In calculating the loss of revenue, Treasury officials estimate taxes that would be paid on employer contributions to pension funds if they did not receive beneficial treatment. They then add taxes that would be paid on the buildup in pension fund assets if the income was not tax-deferred. Finally, they subtract from the sum the value of taxes paid on benefits paid out to retirees.
But this method exaggerates the size of federal subsidies, Mr. Schieber said, because less than half of retired Americans today receive a pension, having worked at a time when pension plans were not that prevalent. Then too, few older women are eligible for pensions. On the contrary, more than half of American workers today can not only expect to receive pensions, but those pensions typically will be larger than those received by today's pensioners.
As a result, by offsetting huge employer contributions to pension funds - to meet with the enormous level of anticipated benefits to future beneficiaries - against a relatively small amount of taxes now collected on pension benefits paid out, Mr. Scheiber said the Treasury is underestimating the amount of taxes that ultimately will be recouped on pension benefits paid out when millions of American workers eventually retire.
Moreover, the Treasury bases its revenue losses on the size of the entire pension system, including those for public sector and not-for-profit organizations. However, pension fund contributions by public sector and tax-exempt employers could hardly be considered to be subsidized because they were never subject to taxation. In fact, Mr. Schieber says more than half of the tax preferences accorded retirement plans today accrue to public sector workers, even though they make up less than 15% of the work force.
"While it can be argued that employees of such organizations accruing future income rights should be treated exactly the same as private sector employees, there is an incongruity between the inclusion of these plans in the 'tax expenditure' estimates," Mr. Schieber wrote, because "the contributions would not be taxable anyway."
