Humbly submitted: The increases in qualified plan benefit and contribution limits contained in the current tax bill make it the most important piece of employee benefits legislation in the past 17 years.
The biggest retirement challenge that is facing us today is how the baby-boom generation -- which is much larger than the generations preceding and following it -- is going to be able to finance its own retirement.
For typical members of this generation, there were no 401(k) plans in the first part of their careers. And in the last part of their careers, there will be no traditional defined benefit plans.
The only way baby-boomers are going to be able to finance their retirement is by saving significant amounts of money right now. The increases in tax code savings limits in the tax bill recently passed by Congress make that possible.
Let's focus on just one limit: the $10,000 limit on annual salary reduction contributions to 401(k) plans.
That's a pretty modest number, but if an employee contributes $10,000 a year (or close to it) to a 401(k) plan from the beginning of his or her career, the result will be a fairly decent retirement fund.
Unfortunately, 401(k) plans were not widely available for the entire career of the typical baby-boomer. Perhaps as important, the efforts by employers, the media and public officials to educate employees about the importance of retirement savings also are a recent phenomenon.
And young people, who are raising and educating children and buying houses, do not always have $10,000 a year to save.
The result is that the typical baby-boomer's personal retirement kitty is short. In the past, that was not necessarily a problem because the employer's traditional defined benefit plan, which provides significant accruals as an employee grows older, would make up the difference.
And, generally, that's how the pre-baby-boom generation has financed its retirement. But in the past 10 years we have seen the steady erosion of traditional defined benefit plans. For the most part, new employers, like all those high-tech and Internet companies, are not establishing defined benefit plans. And employers who have maintained traditional defined benefit plans are getting rid of them in favor of cash balance plans.
A cash balance plan delivers a benefit that mimics a defined contribution plan. So, cash balance plans work well for younger employees -- the post-baby-boom generation. And, typically, employers converting traditional defined benefit plans to defined contribution plans provide special benefits for those near retirement -- the pre-baby-boom generation.
But baby-boomers themselves are too old to benefit fully from the defined contribution accrual pattern of a cash balance plan and are typically not in the grandfathered group.
They're stuck in the middle.
What can they do?
Well, they could save more. But there is a $10,000 limit on the contributions they are able to make to their employer's 401(k) plan. And, in real life, that limit is really too low to generate a decent retirement fund over the 15 or 25 years they have left in their careers.
For the past 17 years Congress has reduced the limits on tax-qualified savings, viewing those reductions as an easy, relatively painless source of revenue for reducing the deficit and funding other programs with more immediate impact.
The effect of these cutbacks has been to decrease the ability of many middle class employees to save for retirement -- for instance, to make salary reduction contributions to their employer's 401(k) plans.
Why? Has the need for retirement savings gone down over that time? Clearly not; during the past 17 years the baby-boom generation has moved into its prime retirement savings years.
At least one of the reasons for making those cutbacks is that it is easier -- because of the shortsightedness of Congress' budget math -- to generate revenue through cuts in savings limits rather than through cuts in other programs that have more immediate payoffs.
Who is going to pay for the baby-boomers' retirement? Not the generation following them -- there are too few of them to sustain the burden. Baby-boomers are going to have to pay their own way. And we have to give them the tools to do it.
The new tax bill provides those tools. The proposals include:
* an increase in the 401(k) salary reduction limit to $15,000 from $10,000;
* a further, "catch-up" increase in that limit for individuals older than 50; and
* an increase in the amount of compensation that may be taken into account under the plan, which will ease 401(k) non-discrimination testing.
We know that getting these changes enacted is going to be tough.
The Clinton administration opposes them because they only help the "rich," those who make more than $80,000 a year or who can afford to save $15,000 or $20,000 a year.
One can understand the administration's desire to expand coverage -- how we are going to provide for those individuals who cannot save for their retirement is an issue that must be addressed. But we also need to address the issues of those individuals who can save for retirement.
The revenue impact of these changes is minimal -- the cost of the increase in the 401(k) salary reduction limit is $5.2 billion over 10 years, and the cost of the catch-up is only $800 million over 10 years. Refusing to make them because they "only help the rich" -- if you call someone making $80,000 a year rich -- seems mean-spirited.
It is now crunch time. Employers and 401(k) plan participants should make their voices heard on this issue. Yes, writing, calling or e-mailing your congressman, or the president, takes time and effort, and you have a lot of other things to do.
But if you don't speak up now, they are going to continue to ignore you.
And then, maybe, 20 years from now, when you wish you could get in a round of golf but can't because you have to go out and flip burgers to raise some extra cash, you might regret it.
