Congress shouldn't let pension issues, or most other issues, delay tax reform.
Simplifying the tax system, making it economically more efficient yet less burdensome, is too important to the economy to be delayed unnecessarily.
That doesn't mean legislators should ignore private pension plans in their effort to simplify the tax system. Indeed, they need to study the potential impact on retirement programs in the short and long term.
Some have suggested that an overhaul of the tax system would cause the demise of the employer-sponsored pension system, but those fears are exaggerated.
To be sure, the federal government doesn't always act in the best interest of pension recipients or pension sponsors. In fact, many of the rules and regulations enacted since the passage of the Employee Retirement Income Security Act of 1974 have been designed to increase tax revenue to the detriment of the private pension system.
For example, the government restricted the amount companies could contribute in any one year to cover unfunded pension liabilities; it made the anti-discrimination rules increasingly complex; it reduced the limit on qualified pension benefits; etc.
In addition, Congress effectively killed the use of IRAs for most wage-earners, removing an incentive to save at a time when many in government and the private sector decried the lack of savings.
President Clinton recognized, in part, the problem of overregulation by proposing his small-business pension reform, which would lift many restrictions
Yet despite the burdens, pension plans have evolved and survived. In fact, companies did not need government incentives to establish pension plans. Some companies did so before any tax advantages were enacted, though certainly those incentives in the code, when enacted, encouraged more companies to create pension programs.
But perhaps incentives have outgrown their usefulness. Employees have achieved many benefit improvements without government tax-code incentives. These include vacations and, more recently at some companies, such benefits as health insurance, legal insurance and day-care services. Some 10% of companies reportedly offer sabbaticals to employees, Frank Russell Co. being the most recent, offering it to all employees.
In many cases, unions have collectively bargained for pensions and other benefits for their members, putting pressure on companies to offer similar benefits to non-union employees.
Employers aren't going to suddenly abandon their pension programs if a tax reform bill passes.
Tax reform may cause the way pensions are provided to devolve even more to employees. It is already moving in that direction with the employee-directed contributions and investments of 401(k) plans.
Employees' financial needs are more complex and demanding, both in terms of savings and the mobility of their lives.
To attract them, employers need to offer flexible and portable benefits and to help employees manage their benefit programs and their money.
Done right, tax simplification should save the economy billions of dollars, and encourage employees to save more. Employers will still have important roles to play in encouraging retirement saving and investing. The roles may just be different than they are today.