WASHINGTON - Retirement issues are expected to figure prominently in President Clinton's Jan. 27 State of the Union address, underscoring the importance of these issues in a mid-term election year.
Insiders predict Mr. Clinton will use his speech to support creation of traditional pension plans among small businesses, as well as the need to fix Social Security and provide health-care coverage for older Americans.
"Within the administration it is no secret what we're promoting -a true defined benefit plan option for small businesses," David M. Strauss, executive director of the Pension Benefit Guaranty Corp., said in a December interview.
Top members of the Clinton administration, Mr. Strauss said, have begun examining a prototype of a simplified defined benefit plan, as outlined in the Secure Assets for Employees Plan Act of 1997 introduced last year.
Labor Secretary Alexis Herman also has publicly expressed interest in simplified pension plans for small employers. Also, the ERISA Advisory Committee, a citizens group advising the Labor Department, recently endorsed the SAFE plan "as an excellent starting point."
In his annual address to the nation, the president is expected to highlight the need for a bipartisan accord to restore the Social Security system to financial health, without favoring a specific approach.
While experts do not anticipate legislative action this year, they expect lawmakers to hold hearings and town hall meetings to raise public awareness of the need for reform.
And, Speaker of the House Newt Gingrich, R-Ga., has proposed creating a national commission to discuss ways to reform Social Security, leading to legislation before the next presidential elections in 2000.
"I don't expect to see legislative action to reform Social Security until after the 1998 elections, but I do think we will see something enacted into law before Clinton leaves office," said David M. Walker, a partner in the Atlanta office of Arthur Andersen LLP, and a former trustee of the Social Security trust funds.
In his speech, Mr. Clinton may address the lack of health-care coverage among early retirees, according to some experts. Last week, he proposed letting early retirees buy into their former employer's insurance until they are eligible for Medicare.
BUSY PENSION CALENDAR
Apart from the SAFE bill, which is expected to be discussed in both the Senate and House, lawmakers have penciled in a busy calendar for pension issues.
A White House summit on retirement issues, scheduled for late June under the Savings Are Vital to Everyone's Retirement Act passed last year, is responsible for some of the flurry of activity.
"The SAVER summit will raise the bar," said Brian H. Graff, executive director of the American Society of Pension Actuaries, Arlington, Va., and former legislative counsel to the Joint Committee on Taxation. "The summit will stimulate the desire to enact something, not just introduce legislation."
"The climate continues to be very positive in promoting retirement savings this year," said Rep. Earl Pomeroy D-N.D., a member of a bipartisan congressional pension group, who has drafted a catch-all pension "portability bill."
Apart from portability, another hot-button item likely to be debated in Congress is the gender gap.
"It is election year, and the 1996 elections reminded us that women are an important voting bloc, and also tend to pay more attention to retirement issues," said Frank McArdle, manager of the Washington office of Hewitt Associates.
Additionally, Rep. Barbara Kennelly, D-Conn., who last year co-sponsored the Comprehensive Women's Pension Protection Act of 1997 with Sen. Carol Moseley-Braun, D-Ill., is expected to make another push for the bill before she leaves Congress at the end of this year to run for governor of Connecticut.
Also on the table for 1998 are dozens of items left over from proposals that didn't make it into 1996 and 1997 law changes.
Among them: repeal of "top heavy" rules that often make it hard for small, family-owned businesses to offer retirement
plans; provisions letting employees make up contributions to their retirement plans for periods in their lives when they couldn't afford to contribute; and a clarification that employers may allow IRA contributions to be deducted directly from employees' paychecks without being held liable under federal pension law for how employees' investments perform.
Moreover, experts suggest the odds favor passage of at least some of the laundry list of pension provisions being proposed this year as part any tax package.
Among new legislation being offered up this year is Mr. Pomeroy's portability bill.
Many of the provisions in Mr. Pomeroy's bill are borrowed from comprehensive pension legislation introduced last year by Sen. Bob Graham D-Fla.
The key provisions:
Enabling workers to move retirement savings among 401(k), 403(b) and 457 plans;
Allowing workers to roll over money from individual retirement accounts to 401(k) plans;
Decreasing the vesting period for employer matching contributions. The period would be cut to three years from five if "cliff" vesting is used, and to five years from seven under "graded" vesting.
Letting workers roll over after-tax contributions from one retirement plan to another when they change jobs.
Increasing the penalty for early withdrawals from retirement plans to 15% from the current 10%. "We're sending the signal that while we are making it easy to move money between plans, we still want the money to remain in the system," an aide to Mr. Pomeroy said.
Repealing the "same desk" rule, a change that would make it easier for workers of merged or sold businesses to participate in the retirement plan of the acquiring company.
Extending the PBGC's missing participant program to retirement plans.
Making it easier for employers to give employees lump sum cashouts if they have earned less than $5,000 in benefits in their current jobs when they quit.
Giving the IRS discretion to extend the 60-day rollover period for workers who can't move their money into other retirement plans within that time frame because of emergencies.
Other legislators are expected to put new items on the table in 1998. Among them:
Sen. Edward Kennedy, D-Mass., plans to propose cutting the Social Security payroll tax to 5.3% each for employees and employers but simultaneously removing the cap, so that higher-paid employees would pay a proportionately higher amount than lower-paid ones. Now, workers do not have to pay the 12.4% Social Security tax on earnings in excess of $68,400 in 1998.
Sen. William V. Roth Jr., R-Del., chairman of the Senate Finance Committee and responsible for IRA expansion last year, plans on pushing for legislation expanding IRA availability even further by raising the $2,000 cap on annual contributions, as well as hiking the income limits of people eligible to contribute to IRAs, according to Ginny Flynn, a spokeswoman. Additionally, he plans on holding hearings on Social Security and the private pension system, she said. "Retirement security is going to be one of the major issues he looks at this year," she noted.
Harris Fawell, R-Ill., who heads the House Employer/Employee Relations Subcommittee and is retiring at the end of this year, is planning to hold a series of hearings on the Employee Retirement Income Security Act, "to see how well the statue is working," said Russ Mueller, an actuary and Republican staffer to the House Education and Workforce Committee.
In particular, Mr. Fawell intends to examine the role of the PBGC in ensuring retirement income security. "The PBGC is the backstop of the defined benefit pension system and we want to make sure it works properly," Mr. Mueller said.
Mr. Graham is expected to reintroduce earlier provisions that didn't get included in last year's legislation, as well as several new items. He is holding a town hall meeting Jan. 15 in Tampa to seek suggestions for new legislation.
Reps. Rob Portman, R-Ohio, and Benjamin Cardin, D-Md., are expected to introduce a broad bill to further reduce the paperwork burden for pension plan sponsors. One likely provision would eliminate caps - currently at $10,000 a year - on the amount workers can contribute to their defined contribution plans, said Samuel Murray, a Washington-based lobbyist for The Profit Sharing/401(k) Council of America.
The two lawmakers also might propose eliminating the limit (the lower of $30,000 or 25% of pay) on the amount of money workers can put away in all retirement plans.
APPWP'S WISH LIST
Lynn D. Dudley, director of retirement policy at the Association of Private Pension and Welfare Plans, who is lobbying furiously for many of these provisions, notes that the limit was $45,475, until 1982. Then, it was lowered "for revenue reasons and it has never been raised again."
Messrs. Portman and Cardin also are expected to push for another item at the top of APPWP's wish list - an increase to $233,000 from $160,000 in the amount of pay that employers can take into account in making pension plan contributions.
Sen. Charles E. Grassley, R-Iowa, chairman of the Senate Special Committee on Aging, plans to introduce legislation making 401(k) SIMPLE plans more attractive by streamlining the paperwork requirements. He also is considering an amendment to the Older Americans Act, which is up for reauthorization this year, that would set up a toll-free telephone line to the Administration on Aging, for help with pension-related problems.
Moreover, the APPWP hopes to find lawmakers who will sponsor legislation that will hike the amount workers can receive in any year from defined benefit pension plans. Currently, workers can receive only up to $130,000 a year.
The Washington-based trade association also would like legislation that allows employers flexibility in adhering to non-discrimination rules.
"The pension rules should fit in with the business, rather than the business fitting in with pension rules," Ms. Dudley said.
The APPWP also aims to lobby lawmakers to introduce legislation repealing the minimum distribution law that forces retired workers to begin pulling out their money at 701/2 years. APPWP advocates lifting the age to 75, and exempting those with small savings from complying with the rule.