While members of Congress concede that overhauling Social Security is off the table this year, industry officials are optimistic that Congress will finish this year another crucial piece of the retirement savings puzzle: pension reform.
Rep. Bill Thomas (R-California), chairman of the House Ways and Means Committee, was scheduled to release his sweeping retirement savings package–which included Social Security reform–in September. But those plans were derailed when Hurricane Katrina hit the Gulf Coast in late August. Since then, Thomas has focused on providing tax relief to hurricane victims, and has passed two bills providing such relief, with more on the way, according to a spokesperson for Thomas.
The IRS and Treasury Department are also working to provide relief to those affected by the hurricane. In September, the IRS and Treasury said that 401(k)s and similar employer-sponsored retirement plans could make loans and hardship distributions to victims of Hurricane Katrina and members of their families. Withdrawals must be made by March 31, 2006.
As it stands now, Thomas has refrained from publicly stating when he plans to unveil his retirement security package, but “we still expect him to take up pension reform” this year, says Rick Lawson, VP of federal government relations at the Principal Financial Group. The House Education and Workforce committee referred H.R. 2830, the Pension Protection Act of 2005, to Thomas’s committee on September 28. Once Thomas’s committee takes action, which at press time was expected to be by the end of October, the bill would go to the full House floor. H.R. 2830 is a comprehensive bill that updates outmoded pension laws, increases the contributions that employers must make to their pension plans, seeks to shore up the Pension Benefit Guarantee Corp.’s deficit, and would allow investment advisors to give advice to 401(k) plan participants.
A hybrid of a defined benefit and a 401(k) defined contribution plan is closer to reality. The Principal Financial Group and the American Society of Pension Professionals & Actuaries developed the concept of the hybrid plan, called the DB(k). In late September, Rep. Rob Andrews (D-New Jersey) and Jim Nussle (R-Iowa), co-sponsored a bill, the Small Employer Defined Benefit Expansion Act, which would allow employers to provide guaranteed defined benefits and 401(k) employee savings without having to administer two plans. A similar DB(k) proposal was introduced by Senate Finance Committee Chairman Charles Grassley (R-Iowa) and ranking member Max Baucus (D-Montana) as part of the National Equity Savings Trust and Guarantee (NESTEG) Act (S. 219) earlier this year and was approved by the Senate Finance Committee on July 26, 2005.