Reps. Portman and Cardin Introduce A New Pension Reform Bill

By

Washington

Retirees who receive part of their retirement income in the form of an annuity would receive tax-favored treatment under new legislation introduced by Reps. Rob Portman, R-Ohio, and Ben Cardin, D-Md.

In the latest Portman-Cardin pension reform bill, retirees with incomes up to $90,000 could exclude up to $2,000 in annual retirement plan annuity income from taxation.

In other words, 10% of up to $20,000 annually in annuity income would be tax-free.

The American Council of Life Insurers, Washington, strongly praised the provision.

“We need to make sure that retirees who will be living 20, 30 years or longer in retirement do not exhaust their savings,” says ACLI President Frank Keating.

“We also need to continue to encourage workers to take personal responsibility for their financial futures so they will not have to rely so greatly on governmental assistance in the their retirement,” he adds.

In addition to the new annuity provision, the Portman-Cardin bill (bill number not available at press time) seeks to further expand retirement savings opportunities and simplify pension plan design rules.

For example, it would accelerate the increased savings limits contained in the 2001 Tax Relief Act by putting them into effect beginning in 2004.

In addition, the legislation would immediately accelerate the limit on contributions to Individual Retirement Accounts to $5,000.

Moreover, the legislation would simplify administration of defined benefit plans, such as by streamlining the plan valuation data collection process.

On the health side, the legislation would allow employers with defined contribution plans to fund a portion of retiree medical expenses on a pre-tax basis.

For small businesses, the legislation simplifies small business-oriented plans called SIMPLE plans.

Employers would be allowed to make additional contributions to SIMPLE plans for all workers, to step up from a SIMPLE plan to a 401(k) plan in mid-year and have a low-cost salary reduction option.

The American Benefits Council, Washington, a major employers group, also praised the legislation, saying that Portman and Cardin are continuing to lead the fight for expanded pension coverage for all Americans.

“Lets be honest,” says ABC President James A. Klein, “for years pensions was a topic that made the collective eyes of Congress glaze over.”

“But,” he says, “Rob Portman and Ben Cardin have delved into the details of pension policy and have made the issues come alive for other members of Congress.”

The new legislation, Klein says, contains many important reforms that help plan participants and their families prepare for retirement and preserve retirement assets.

In other news, industry groups are praising the Senate Judiciary Committee for approving legislation that would reform the class-action litigation system by moving major national class-action lawsuits from state courts to federal courts.

“This is a good step in the right direction,” says Jack Dolan, a spokesman for the American Council of Life Insurers, Washington.

“Life insurers have long supported reform of class-action litigation,” Dolan adds.

“This is a much needed piece of legislation,” says Kenneth D. Schloman, Washington counsel for the Alliance of American Insurers, Downers Grove, Ill., a property-casualty group.

“It hits some of the worst problems in the class-actions system–forum shopping, nuisance suits, class certifications and settlements not in the best interests of plaintiffs,” he says.

The legislation, S. 274, was approved on a bipartisan basis after a compromise was worked out by Senate Judiciary Committee Chairman Orrin Hatch, R-Utah, and Sens. Dianne Feinstein, D-Calif., Herb Kohl, D-Wisc., and Charles Grassley, R-Iowa.

Under the bill approved by the committee, federal courts would have jurisdiction on most major class actions in which the plaintiffs are asking at least $5 million in damages.

Under an earlier version of the legislation, the threshold was $2 million. H.R. 1115, a class-action bill pending in the House, also has a $2 million threshold.

Along with the $5 million threshold, S. 274 establishes a three-tiered system for determining whether a class action is heard in state or federal court.

Under the first tier, if more than two-thirds of the plaintiffs are from the same state as the primary defendant, the case automatically stays in state court, regardless of the amount in controversy or whether one or both parties ask for federal court adjudication.

Under the second tier, if fewer than one-third of the plaintiffs are from the same state as the primary defendant, the case will be heard in a federal court if either side requests it and the $5 million threshold is reached.

Under the third tier, where between one-third and two-thirds of the plaintiffs are from the same state as the primary defendant and the $5 million threshold is reached, the federal judge would have discretion to hear the case based on several factors, such as whether the case is national in impact.

S. 274 also contains a variety of consumer protections, such as judicial review of noncash settlements, plain English settlement notification, a ban on settlements that cause plaintiffs to lose money and various nondiscrimination rules.


Reproduced from National Underwriter Edition, April 21, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.