Compliance February 2, 2002

Employer Organizations Push For Portman/Cardin Proposal

February 14, 2001 (PLANSPONSOR.com) - Employer industry groups are lining up to urge inclusion of the Portman/Cardin proposal in President Bush's tax proposal, with some predicting a significant boost in savings regardless of current nondiscrimination limits.
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Yesterday, the American Benefits Council, the Profit Sharing/401k Council of America and the ERISA Industry Committee (ERIC) all issued statements in support of that notion.

The Profit Sharing/401(k) Council applied the Portman/Cardin proposals to contribution data provided by its members to illustrate the possible impact of the plan on retirement savings.

Sample Case

PSCA assumed those making $85,000/year or more (the highly compensated group) can only contribute at an average rate 2% higher than the nonhighly compensated workers according to the limits imposed by the average deferral percentage (ADP) test. Drawing from their member survey of 401(k) plans, PSCA assumed that the nonhighly compensated workers would be able to contribute at a 5.4% rate, leaving the highly compensated workers to contribute 7.4%.

Based on those assumptions and no change in the nondiscrimination tests, PSCA says that a “typical” worker aged 45-49 could see their maximum contribution rise from $6,974 to $15,000/year.  A worker aged 50-54 could see their maximum lifted from $7,249 to $20,000/year, with the make up contribution provision for older workers.

While all workers may not contribute at that rate, PSCA President David Wray told PLANSPONSOR.com that the raised limits are likely to encourage greater savings by dual-income households.  Furthermore, increased savings by those in the nonhighly compensated group should result in a higher level of saving by highly compensated workers, even under the existing nondiscrimination rules.

Just as significantly, it is widely believed that higher contribution limits that are more meaningful for business owners will result in an expanded support for new programs. 

Bipartisan Support

The importance of retirement savings, strong bipartisan support for the measure and the need to restore benefit and contribution levels that have not kept pace with the cost of living were all cited by one or more of the employer groups.  Another key concern expressed was the desire to help workers cover gaps in their work history, as well as older workers who may not have saved enough earlier in their career.

The original Portman/Cardin bill passed the House last July by a 401-25 vote.  Key provisions dealing with retirement savings include:

  • expanding the IRA limit from $2,000 to $5,000
  • expanding the 401(k) limit from $10,500 to $15,000
  • providing a new annual $5,000 catch-up contribution for older workers

Comments from ERIC noted that the current limitations have created a split in retirement coverage, with business decision-makers increasingly relying on nonqualified plans for the bulk of their retirement savings -an option not afforded many of the rank-and-file, or even “middle management.”

– Nevin Adams   editors@plansponsor.com

Go here for ERIC’s statement. Comments from the American Benefits Council are here.  PSCA’s is here .

Go here for our exclusive interview with Reps. Portman and Cardin.

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