Pension enhancements could be tied to Social Security changes
President Bush’s insistence that Congress move this spring on reforming Social Security appears to offer another opportunity to win congressional support for private pension plan enhancements the life insurance industry has been seeking without success for several years.
The first opportunity to test this will occur May 12, when the House Ways and Means Committee holds the first in another series of hearings on Social Security issues. In comments to the press on April 29–a day after President Bush made another pitch for his Social Security reform proposals–Rep. Bill Thomas, R-Calif., chairman of Ways and Means, said he would move ahead quickly to turn the president’s proposal into legislation and was aware he would have to add “sweeteners” or “add-ons” to win the reluctant support of Democrats. The hearings and legislative action would start in the full committee, Thomas said, and then move to the panel’s Social Security Subcommittee. He was accompanied to the meeting by Rep. Jim McCrery, R-La., chairman of that panel.
Thomas cited support for incentives for people to get long term care insurance as one of those incentives he is prepared to offer Democrats as sweeteners to support the president’s program, and said he was open to suggestions. And Rep. Charles Rangel, D-N.Y., said Democrats were interested in a reform proposal that contained more than cuts in Social Security–but only if the president took private accounts off the table.
Bills offering a range of retirement incentive options, most supported by the insurance industry, were introduced separately that same day by Rep. Rob Portman, R-Ohio, and Rep. Ben Cardin, D-Md. The two bills are similar, with two exceptions, according to several industry officials. They are supported by the industry.
The bills contain provisions that streamline and facilitate creation of Individual Retirement Accounts, increase portability of retirement plans and make it easier for small businesses to establish pension plans.
“What also is extremely important is that their bills provide tax incentives for people to obtain lifetime income through annuities,” said Frank Keating, president and CEO of the American Council of Life Insurers, in lauding introduction of the two bills. “Many people can expect to spend 20 or 30 years or more in retirement. They want and need help in guaranteeing they will have an income they will not outlive to complement Social Security. These bills would help them do just that.”
In his comments Keating said, “Congress should act promptly to boost long-term savings, promote annuitization and, in all, address our nation’s retirement security crisis. Congressmen Portman and Cardin are showing the way.”
While representatives of ACLI and the National Association of Insurance and Financial Advisors declined further comment, Ken Cohen, associate general counsel and a government affairs official at Massachusetts Mutual Life Insurance Company, said there was opportunity to link President Bush’s demands for Social Security reform with the pension enhancements contained in the two bills. “The bills are important in that they represent a bipartisan consensus by two leading pension experts in Congress,” Cohen said, “and represent the types of provisions that are likely ‘sweeteners’ or ‘broadeners’ that may help win Democratic support.”
The two bills “represent the next generation of pension reform that could pick up support from both sides of the aisle,” Cohen added.
Other provisions in the bill introduced by Cardin would enable tax refunds to go directly into retirement accounts through electronic means and would allow for faster vesting of 401(k) matching contributions contained in the 2001 tax act to other employer contributions, such as profit-sharing contributions.
Cardin’s bill also would make permanent all of the retirement savings and pension reforms contained in the 2001 tax act–such as catch-up contributions, small business pension incentives, and expanded IRAs and 401(k)s. These provisions currently are scheduled to sunset at the end of 2010; it also would make permanent the savers’ credit, due to sunset at the end of 2006.
Portman’s bill provides for all these pension enhancements, as well as promoting automatic enrollment and automatic increase designs. Under the automatic enrollment provision of Portman’s bill, individuals would automatically participate in their employer’s retirement savings plan unless they decided to opt out.
The two bills “represent the next generation of pension reform that could pick up support from both sides of the aisle,” says an industry lobbyist