WASHINGTON -- The Clinton administration's boldest retirement initiatives are noticeably absent from the fiscal 2000 federal budget presented to Congress last week.
Those included in the budget are mostly leftovers from last year's budget, or ones that already have been sounded out by the administration. These include portability provisions drawn from legislation that already has broad bipartisan support and is considered a shoo-in this year.
The total cost of the pension provisions is estimated to be just short of $1 billion over the next five years.
"What I'm surprised at is the lack of new ideas . . . to promote employer-sponsored plans," said Brian H. Graff, executive director of the American Society of Pension Actuaries, an Arlington, Va.-based group. He expressed disappointment that proposals by PBGC Executive Director David M. Strauss to jump-start traditional defined benefit plans were missing.
The budget also was noticeably silent on details of the universal savings accounts President Clinton advanced in his State of the Union address last month.
The Clinton administration has said it hopes to work with lawmakers to fill in the blanks.
And, there is no word yet on how much the government would contribute and who would be eligible under Mr. Clinton's plan to set aside 11% of the projected federal budget surpluses over the next 15 years, or approximately $33 billion a year, to give most workers USA accounts.
What's more, pension experts say, the administration's failure to take the lead on pension-related issues leaves the door open for lawmakers to introduce ideas to reform the private pension system.
"The real action will take place in congressional committees and on the floor of the House and the Senate," said Frank B. McArdle, manager of the Washington office of Hewitt Associates LLC, an employee benefits consulting firm.
Others pension experts agree.
"This year's budget is not the starting point of the debate" on retirement issues, said James M. Delaplane Jr., vice president of retirement policy at the Association of Private Pension and Welfare Plans, a Washington-based group representing large employers.
Despite their disappointment at a lack of new initiatives in Mr. Clinton's budget, employer groups and pension experts were delighted at the White House's endorsement of provisions that would make it easier for workers to take their retirement savings from job to job. These portability provisions, based on legislation introduced by Rep. Earl Pomeroy, D-N.D., last March, have strong support from both sides of the aisle and a negligible cost that makes them attractive candidates for legislative action.
"Portability is a no-brainer, but having the administration support will help move it," Mr. Pomeroy said.
These provisions include letting workers move retirement savings among 401(k) plans, 403(b) plans and individual retirement accounts. The portability provisions also would let workers separately move after-tax contributions between employer-sponsored retirement plans and IRAs. Also, public sector employees could roll their retirement savings from Section 457 deferred compensation plans to IRAs and could take retirement savings from 403(b) and 457 retirement plans and use it to buy additional service credit in defined benefit plans.
Employer groups also continue to back some provisions carried over from the 1999 fiscal budget, including those aimed at small businesses. These are a tax credit to cover some of the startup costs of retirement plans; and the creation of a new simplified pension plan. The Secure Money Annuity or Retirement Trust plan resembles the Secure Assets for Employees Plan Act introduced by Rep. Nancy Johnson, R-Conn., and Mr. Pomeroy in 1997. That plan enjoys bipartisan support in both chambers and will be reintroduced this year.
Also seen as favorable are budget provisions that would:
* Let employers deduct IRA contributions directly from workers' paychecks. Employers would not have to withhold income taxes on employee contributions to tax-deductible IRAs.
* Let workers count unpaid leave taken for family emergencies toward eligibility for participating in pension plans or toward vesting of benefits. Some companies already let workers count their family medical leave toward pension eligibility and vesting.
* Let workers covered by industrywide or multiemployer plans receive as much as $130,000 a year in pension benefits. The current limit is the lesser of $130,000 or the average of three years of highest pay. This change is comparable to changes made for public-sector plans in 1996.
* Remove the full funding limit that caps how much employers can contribute to multiemployer plans. The limit is considered meaningless as employers have little incentive to contribute more than they have to industrywide plans.
* Eliminate partial termination rules for multiemployer plans. Because of the fuzziness in determining when a "partial termination" has occurred, the rule would no longer apply to multiemployer plans.
Some headaches, too
But employers continue to resist several provisions in the budget.
One that they say could cause an administrative headache would let participants elect to give their surviving spouses as much as 75% of their monthly pensions. Under current law, surviving spouses of participants who elect that option receive only 50% of the monthly pension.
Some employers that offer employees the choice of letting their surviving spouse receive 60% or 70% would have to amend their plans to offer 75%, Mr. Delaplane said. "There might be another way to structure this option to lessen the administrative headache," he said.
Other provisions that pension lobbyists find irksome are:
* Speeding up the vesting of employer matching contributions so companies that vest their employees fully would have to do so after three, not five years, and employers that vest gradually over time would have to do so in five years, not seven.
* Ensuring spouses receive explanations of survivor benefits.
* Redefining highly paid employees. Tax law changes in 1996 made it easy for some businesses, such as Wall Street firms, to pass the non-discrimination tests by passing off some employees earning six-figure incomes as lower paid. Under the 1996 law, those who own more than 5% of a company, earn more than $80,000 or are in the top 20% of salaries at that particular company are considered to be highly paid. The budget proposal would knock off the optional 20% classification.
* Requiring employers to contribute 1% of pay for all lower-paid employees covered by 401(k)-type retirement plans, regardless of whether employees put in any of their money. This provision would apply only if companies choose not to prove their plans don't favor higher-paid executives over rank-and-file workers. Starting this year, employers can opt out of conducting the non-discrimination tests if they match the first 3% of pay contributed by rank-and-file workers, or offer an additional match of 50 cents on the dollar for the next 2% of pay.
But many lower-paid workers aren't eligible for employer matches because they don't put any of their own money into retirement plans, the administration argues. Therefore, the 1% contribution would give them a leg up in saving for old age and might encourage them to put some of their own money in by showing them the power of compounding.
Taxing ESOPs
Finally, the ESOP Association, a Washington-based trade association, is mad about the administration rethinking its position on an arcane law change made just more than a year ago.
The administration's provision would slam S corporations, usually small businesses with a limited number of shareholders, that have employee stock ownership plans. Under the provision, the ESOP would have to pay unrelated business income tax on its share of the corporation's income upfront, instead of getting the deferral available under the 1997 tax law changes.
At that time, the provision was on the list of items President Clinton could have vetoed because it apparently affected fewer than 100 companies, said Michael J. Keeling, president of The ESOP Association.Now the administration has said it hopes to raise as much as $750 million over five years through repealing the 1997 law.
"The corporate sponsor would get rid of the ESOP," or switch its corporate status, Mr. Keeling said.
But Martin D. Ginsburg, a law professor at Georgetown University, Washington, has said the 1997 tax law change should be repealed because it gives S corporation shareholders an undue advantage over other corporate shareholders.
