WASHINGTON - Senate Republicans, playing catch-up with the Democrats, are expected to unveil their retirement security program soon.
The Democrats introduced sweeping pension legislation in the first week of the 105th Congress. A group of moderate Democrats and Republicans also is reshaping the Democratic package.
Whatever the Democrats and Republicans ultimately decide is expected to become part of the federal budget bill currently being debated in Congress.
The Republican package - crafted by a task force headed by Sen. Judd Gregg, R-N.H. - will mirror the Democrats' broad themes of improving pension and individual retirement account coverage and making pensions more secure, more portable and fairer toward women.
The Republicans will recommend an expansion in tax-deductible IRAs, removing inequities in pension coverage for women, making it easier for job-hoppers to take their assets with them and creating simple-to-administer traditional pension plans.
The package also would increase the ceilings on how much money employers can contribute to employee pension plans; prevent pension plans from investing in certain kinds of investments; and weed out tedious regulations and paperwork requirements for plan sponsors.
IRAs first on the list
First on the Republicans' wish list is a tax-deductible IRA for all workers regardless of income, according to a draft of the Republican package obtained by Pensions & Investments.
The provision is identical to legislation introduced earlier this year by Senate Finance Committee Chairman William V. Roth Jr. R-Del., and Sen. John B. Breaux, D-La.
The Democratic proposal, by contrast, would make fully deductible IRAs available to American families earning up to $80,000 a year, double what's permitted under current law.
The Republican legislation also seeks to ensure women get a better deal than they traditionally have, but differs from the Democrats in how it approaches the problem.
The Senate Republicans package would permit fully deductible IRAs for homemakers as does the Democratic package, and let those returning to the work force after the birth of a child - or after 15 years of child-rearing - contribute twice the permissible amount to their 401(k)s.
"Under current law, many parents find themselves close to retirement age without being permitted to make contributions to 401(k) plans which are sufficiently large to offset the lack of opportunity to contribute during child-raising years," according to the Republican draft.
The provision is modeled on a 1994 law that lets military reservists returning from active duty make higher than normal contributions to retirement programs to make up contributions missed while on duty.
Portability addressed
Another provision in the Republican package would permit portable defined benefit pension plans aimed especially at small businesses. The goal is to help workers set aside more money immediately before retirement.
The provision, suggested by the American Society of Pension Actuaries, would complement the SIMPLE plans small businesses now can set up. The ASPA provision adopted by the Senate Republicans would let small businesses set up hybrid cash balance pension plans that offer the portability and transparency of defined contribution plans.
The plans would provide retirement benefits according to a set formula. They would not be insured by the Pension Benefit Guaranty Corp., and therefore would be cheaper for employers to administer.
The plans would be funded through a separate trust, or individual annuities, according to Brian H. Graff, executive director of the ASPA, Arlington, Va.
Actuarial assumptions would be set by law, not by employers, Mr. Graff said.
Other portability proposals would:
Allow government workers moving to the private sector to switch their retirement savings from public sector 457 and 403(b) plans to 401(k) plans.
Let government workers roll over IRAs into employer pension plans; employers also would be able to accept rollovers from other pension plans without worrying about their plan losing tax-favored status.
Shorten the vesting period for defined benefit plans to three years from five.
Allow federal employees to participate immediately in the thrift savings plan. Now, they have to wait up to a year.
Security also an issue
Additionally, the Republican package would aim to make pension plans more secure by prohibiting economically targeted investments, deemed risky by some legislators. That provision, introduced in the last Congress by Rep. Jim Saxton, R-N.J., passed the House but failed to clear the Senate.
The provision has very little support and probably wouldn't be part of the final package. Still, it could be introduced as an amendment in the horse-trading expected to occur when Democrats and Republicans negotiate over their versions.
The Senate Republican package also has borrowed a provision from the Senate Democrats that would prevent employers from investing more than 10% of defined contribution plan assets in company stock or real estate unless employees make that choice.
Finally, the Republican package would encourage employers to increase the amount of money they contribute annually to defined benefit plans through small increases each year.
Currently, employer contributions are restricted to 150% of their current pension liability or sound actuarial limits, as defined by federal pension law, whichever is lower. Employers contributing more than the lower of those two limits not only can't claim a tax deduction for their contribution, but also face a 10% excise tax.
This provision, originally recommended by the Association of Private Pension and Welfare Plans, the Washington-based trade group, would eliminate the 150% cap (often the lower of the two limits) and let employers rely on funding up to sound actuarial limits.
The provision expands a similar provision in the Democratic package that would apply only to multiemployer plans.
Bipartisan package in works
Meanwhile, Sen. Bob Graham, D-Fla., is shopping for a Republican partner who will support a bipartisan pension package that includes many of the ideas mentioned in earlier partisan proposals.
A staff member for Mr. Graham said the most important principles of the package are pension portability and increased pension coverage in small businesses.
It's not clear which elements will be in Mr. Graham's final bill, expected in late April. But a description of the bill lists several provisions to encourage workers who change jobs to roll over their accrued benefits to the new employer's plan.
The bill also would protect plans accepting rollovers from being disqualified by the IRS, and would waive the IRS' current 60-day maximum to roll over distributions to an IRA.
Vesting periods for matching contributions in defined contribution plans would be reduced to three years from five years.
His bill, like the Republicans', would include a phased-in increase in the cap on employer contributions to defined benefit plans.
Mr. Graham also has his own proposal for creating a simple defined benefit plan for small businesses. Employers could establish automatic payroll deduction for employees to contribute directly to an IRA account.
Mr. Graham's version, like the Democrats' and Republican's, would prohibit 401(k) credit cards and put a 10% limit on employer stock or employer property in defined contribution plans.
His package also would: eliminate filing summary plan descriptions and summary of materials modifications with the federal government; allow plans to continue when an employer identifies and corrects an inadvertent violation; and permit employers to interpret new rules in good faith without being penalized.
Mr. Graham's proposed legislation also is expected to include a popular area in previous bills: improving fairness for women and families.
Mr. Graham's package will not hit the Senate floor unless he has a Republican co-sponsor, one staff member said. Mr. Graham believes the bill has a better chance of passage in its original form if a Republican co-sponsors it.
Sources agreed Sen. Orrin Hatch, R-Utah, may be the best Republican candidate to co-sponsor the bill.
APPWP had similar ideas
Many ideas in both packages also were in a 26-page proposal issued in February by the Association of Private Pension & Welfare Plans, Washington.
In 1989, the association proposed several private pension reforms that eventually were adopted as part of the pension simplification package passed by Congress last year.
Now, working its second stage of pension simplification initiatives, the APPWP is trying to get many of its ideas incorporated in these new legislative proposals.
While a majority of the pension provisions mulling around on Capitol Hill are straight from the APPWP proposal, Lynn Dudley, vice president of retirement policy at APPWP, said some non-controversial elements have not appeared on any bill yet.
One of the easiest provisions to include would be to let certain older workers make increased contributions of up to $5,000 annually to their defined contribution plans, Ms. Dudley said.
"It's the simplest way to help baby boomers save more," she added.
