Compliance February 7, 2001

REFORM READY? House Committee Approves Pension Reform Bill

July 14, 2000 (PLANSPONSOR.com) - The House Ways and Means Committee has approved the Comprehensive Retirement Security and Pension Reform Act. The bill, which now goes to the full House, is widely supported by employer groups and providers. But critics say it's a Robin Hood in reverse.
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The bill, sponsored by Reps. Rob Portman (R-Ohio) and Ben Cardin (D-Md.), was marked up as H.R. 4843, with language largely drawn from H.R. 1102.  It was approved by a 27-9 vote. The measure has bipartisan support and is considered likely to pass the full House next week.

The Clinton Administration indicated it doesn’t oppose the proposed increase in the current IRA limits, as long as it doesn’t encourage small businesses to drop their pension plans – a concern with the proposed bill.  

But critics, including the American Association of Retired Persons, find fault with the relaxation of “top-heavy” rules that will reportedly boost top manager contributions, rather than those of rank-and-file workers. They also say the bill does little to encourage lower-paid workers to save for retirement.

Additional thoughts

H.R. 4843 was approved with two notable changes to the underlying bill:

  • nondiscrimination rules are applied to the “catch-up contributions”, additional contributions made by over-50 workers who are trying to catch up for contributions not made earlier in their career
  • a directive to Treasury to conduct a study on “wear-away” effect of cash balance plan conversions, then report to Congress with recommendations.

On the floor, the bill will once again use the bill number H.R. 1102.

Reform Agenda

Among other things, the proposed bill would:

  • Increase IRA Contributions from $2,000 to $5,000
  • Increase employee contribution limits by $5,000 for workers 50 and older so that they can “catch-up” for years when they weren’t employed, didn’t contribute to their plan or otherwise weren’t able to save
  • Create new “Roth” 401(k)s and 403(b)s, similar to the popular new Roth IRAs
  • Encourage automatic contribution arrangements
  • Modify Top-Heavy Rules, including simplifying the definition of key employees
  • Eliminate IRS “user fee” for the issuance of determination letters for small plans
  • Provide a tax credit based on a small employer’s costs in establishing/maintaining a new pension plan
  • Reduce PBGC premiums for new defined benefit plans of small employers
  • Provide relief for small employers regarding the filing of Form 5500’s
  • Offer increased benefit portability, through allowing rollovers between different plan types (401(a) versus 457 and 403(b)
  • Repeal the Same Desk Rule
  • Lower the vesting requirement for matching contributions to 3 years
  • Permit employees to obtain retirement planning services through salary reduction contributions
  • Repeal the “Full-Funding” Limitation and reform other pension funding rules
  • Require improved disclosure when future pension benefits are reduced, such as in some cash balance plan conversions
  • Reduce liability for inadvertent errors

– Nevin Adams         editors@plansponsor.com

You can find a summary of the bill at http://www.house.gov/jct/x-68-00.pdf

For a copy of the original Portman-Cardin Plan go to http://www.house.gov/portman/pensionsum.htm

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