2 rough roads in 2004 presidential race: Pension issues same; results would differ ...

WASHINGTON — A Democratic presidential win in November could result in new ideas for funding pensions, extending retirement plan coverage and strengthening Social Security.

But if President Bush is re-elected, plan sponsors can expect the administration to advance its already aired proposals for overhauling pension funding rules under ERISA, creating new individual savings accounts and addressing Social Security's financial problems.

"A lot of the same issues will come up even if the administration were to change. This stuff doesn't go away. It will be front and center for whoever is in the White House," said Janice Gregory, vice president of the ERISA Industry Committee, a Washington organization representing corporations.

Sen. John Kerry, who is scheduled to be formally nominated at the Democratic Party convention in Boston on July 29, is expected to push for the creation of a refundable tax credit or government subsidy of up to $1,000 for lower income workers who contribute to retirement accounts. Under current law, the SAVER tax credit — which offsets income taxes paid by lower income workers but does not subsidize workers who don't pay income taxes — is scheduled to expire at the end of 2006.

In a paper earlier this year, William G. Gale, J. Mark Iwry and Peter R. Orzag, scholars at the Brookings Institution, the liberal Washington think-tank, said the key to expanding retirement plan participation is tax incentives aimed specifically at lower income workers. Under their proposal, the SAVER credit would be made refundable and would be fully available to married taxpayers with incomes up to $30,000, declining for higher income workers and phased out completely for married taxpayers with incomes of $50,000 or more.

Mr. Iwry, the benefits tax counsel at the Treasury Department during much of the Clinton administration, confirmed he is advising Mr. Kerry's campaign on employee benefit issues, but wouldn't elaborate.

President Bush has not offered to extend the SAVER credit, although he has expressed a strong desire to make permanent the other tax law changes under the Economic Growth and Tax Relief Reconciliation Act of 2001, including higher contribution limits to retirement and pension plans.

Mr. Bush also is expected to continue seeking support from lawmakers for creating three new tax-sheltered savings accounts he proposed in the last two federal budget plans.

His proposals would create a Lifetime Savings Account, which would permit all Americans to contribute up to $5,000 a year in after-tax savings and pay no income taxes on the investment income or withdrawals; the Retirement Savings Account, which would consolidate deductible, non-deductible and Roth IRAs into a single tax-sheltered account into which people could contribute up to $5,000 a year in after-tax savings; and the Employee Retirement Savings Account, would create one account from the alphabet soup of 401(k), 403(b), 457 and SINGLE retirement plans.

If Mr. Kerry wins the November elections, "you're not going to see RSAs and LSAs," said David Koshgarian, a senior manager at the Washington Council, the lobbying arm of Ernst & Young, and previously the chief of staff to Rep. Ben Cardin, D-Md.

In fact, Gene Sperling, a senior economic aide to Bill Clinton who is now advising Mr. Kerry's campaign, lambasted the Bush savings accounts earlier this year as a "fiscal gimmick."

Mr. Kerry would make permanent the higher contribution limits for retirement and pension plans that were included in the 2001 law changes, said Jason Furman, director of economic policy for the Democratic contender, and a former official in the Clinton administration.

Mr. Kerry has said he would "increase the portability of retirement savings," but has offered no details.

If Mr. Kerry wins the White House, he would also likely offer a different long-term proposal for pension funding rules than Mr. Bush. He withheld voting in April for HR 3108, the Pension Funding Equity Act, which replaced the 30-year Treasury bond as the benchmark for valuing pension liabilities with a basket of corporate bonds.

The new law, which expires at the end of 2005, permits corporations with underfunded pension plans to reduce their pension contributions but includes little help for underfunded multiemployer plans because of a White House veto threat.

Senior officials in the Bush administration are developing a longer-term overhaul of the pension funding rules, which would streamline them, link the valuation of pension liabilities to a company's work force demographics and impose risk-based insurance premiums for the Pension Benefit Guaranty Corp. (Pensions & Investments, May 17).

"I would expect we would see a stronger commitment to the defined benefit system, and it would play itself out in discussions about the funding rules," if Mr. Kerry is elected, said Shaun O'Brien, senior policy analyst at the AFL-CIO in Washington, which has endorsed Mr. Kerry.

Also, the Bush administration has held that cash balance conversions are not inherently discriminatory against older workers. But employers that have converted traditional pension plans to the hybrids can expect little sympathy from Mr. Kerry. He has vowed to "protect older workers from unfair treatment when their benefits are converted to cash balance plans."

But the Bush administration, having been forced to withdraw its proposed regulations dealing with cash balance plans and age discrimination, is not terribly eager to take up the issue again and has deferred the matter to lawmakers.

Rep. Earl Pomeroy, D-N.D., who has an active interest in pension and retirement issues, said there's no getting away from the need to address the hundreds of cash balance plans now in limbo because of the uncertainty over their legal status. "Plans are being frozen every day, and a frozen plan is worse than a cash balance plan," he told a group of retirement experts in Washington last week. "I would expect, irrespective of the election outcome, that it will be very high on the agenda" of either candidate, he said.

On the issue of allowing retirement service providers to offer investment advice to participants, the current administration strongly supports such legislation — introduced by Rep. John Boehner, R-Ohio, some years ago — that has stalled in the Senate. Mr. Kerry is expected to oppose such legislation.

On Social Security, Mr. Bush favors an "ownership" society where individuals have greater responsibility for retirement savings. Mr. Kerry opposes privatization and supports keeping the current Social Security framework intact. Neither has offered a solid plan on shoring up the financially ailing system, although a commission convened by Mr. Bush recommended in December 2001 various permutations of "privatization" through the creation of individual accounts.

But even some Republicans shied away from supporting such an approach in the 2002 elections because of the vagaries of the stock market. And a Congressional Budget Office report released just last week projected that the model plan proposed by Mr. Bush's commission and another privatization proposal offered by two lawmakers would exacerbate the federal deficit.