President Clinton is taking a second stab at pushing for pension system changes he proposed almost a year ago, but on which Congress didn't act.
The administration's leftover pension provisions, which didn't make it into the pension simplification package included in the Small Business Job Protection Act enacted last August, will be part of a package of tax simplification proposals the Department of Treasury will submit to Congress shortly.
The Clinton administration hopes lawmakers eventually will incorporate some or all of the provisions in the package into the federal government's fiscal 1998 budget bill now being debated on Capitol Hill. To make it easier for lawmakers to do that, the administration is designing the tax simplification package to be "revenue neutral," so it neither loses money for the U.S. Treasury nor raises revenue through additional taxes.
But some critics, noting President Clinton's spotlight on pension issues last year, and this year's low-key approach, say the administration will find it tough to sell the package to Congress.
"That's old news. You'd think they'd come up with something new," said Randolf H. Hardock, partner at the Washington law firm of Davis & Harman, and a former benefits tax counsel at the U.S. Treasury Department in Mr. Clinton's first term.
Will Sollee Jr., a principal consultant at the Washington office of Price Waterhouse L.L.P., agrees. "They don't view pensions as a top tier policy issue this year," noted Mr. Sollee, a former Democratic Tax Counsel to the Senate Finance Committee.
But a Capitol Hill staffer who declined to be identified said the criticism is unwarranted. "If they thought (the package) was a good idea last year, why shouldn't they signal it still is?" the source said.
Moreover, a senior administration official who declined to be identified, said the package is just the first step, and the president is considering drafting other pension initiatives later in the year.
For now, though, the administration is once again going to try to ensure small businesses set aside a small amount for all employees in their retirement plans, even if their workers don't contribute any of their own money. Under the proposal, employers with SIMPLE plans would have to contribute at least 1% of pay for all workers to avoid going through onerous tests to prove they don't offer richer retirement benefits to higher paid executives. The reasoning behind this provision is that if cash-strapped workers see the benefit of tax-deferral contributions, it might prompt them to save some of their own money too, the official said.
Other key provisions the Treasury package will include are:
A tighter definition of "highly paid" employees to include all who earn more than $80,000 a year, irrespective of whether they are among the company's top 20% earners. The provision could make it harder for companies to pass tests proving they don't offer disproportionately richer retirement benefits to those who earn more than $80,000 compared with rank-and-file workers. Under the changes enacted last year, employers need only count as "highly paid" those who own more than 5% of a business, or among the top one-fifth of earners.
Loosen contribution limits for multiemployer plans, so employers can base pension contributions on workers' pay up to $125,000, rather than on the average of three years of the highest pay they receive. The change is intended to help lower-paid workers, whose salaries tend to fluctuate greatly, especially if they work in seasonal or cyclical industries. The change would bring union pension plans into sync with public plans, that were allowed to make this change under last year's law.
Enable labor union plans to put more money away by lifting restrictions on contributions. Currently, such pension plans are limited to funding up to only 150% of current liabilities.
Eliminate partial termination rules, so employees would not become fully vested at the end of a project. The rule would not apply to multiemployer plans.