[Congressional Record Volume 143, Number 66 (Monday, May 19, 1997)]
[Extensions of Remarks]
[Pages E964-E965]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          SECURE ASSETS FOR EMPLOYEES [SAFE] PLAN ACT OF 1997

                                 ______
                                 

                         HON. NANCY L. JOHNSON

                             of connecticut

                    in the house of representatives

                          Friday, May 16, 1997

  Mrs. JOHNSON of Connecticut. Mr. Speaker, today the gentleman from 
North Dakota [Mr. Pomeroy] and I are introducing the Secure Assets for 
Employees [SAFE] Plan Act of 1997.
  Ever since enactment of the Employee Retirement Income Security Act 
of 1974 [ERISA],

[[Page E965]]

layer upon layer of complex rules and regulations has been adopted 
seriously frustrating the ability of small businesses to maintain 
retirement plans for their employees. According to a recent GAO study, 
a whopping 87 percent of workers employed by small businesses with 
fewer than 20 employees have absolutely no retirement plan coverage. 
The news is only slightly better for workers at small businesses with 
between 20 and 100 employees where 62 percent of the workers have no 
retirement plan coverage. By contrast, 72 percent of workers at larger 
firms--over 500 employees--have some form of retirement plan coverage.
  This is particularly troubling given that small business provides 
most of the new jobs in today's workforce. In fact, according to the 
Small Business Administration 75 percent of the 2.5 million new jobs 
created in 1995 were created by small business. However, because of the 
impediments to small business retirement plan coverage, these workers 
often find themselves without the opportunity to meaningfully save for 
retirement.
  The present-law roadblocks to small business retirement plan coverage 
have a particularly harsh effect on small business defined benefit 
plans. Most retirement experts agree that defined benefit plans--which 
guarantee a specified benefit at retirement--provide a better and more 
secure benefit for retirees. However, according to the Department of 
Labor between 1987 and 1993 the number of small businesses with defined 
benefit plans dropped from 108,221 to 41,780. That is over a 60-percent 
decline in just 7 years.
  Last year, hoping to improve retirement plan coverage for small 
business employees the Congress created SIMPLE plans for small 
business. However, despite the success of the SIMPLE plan, retirement 
plan coverage for small business employees continues to be inadequate 
because of the limitations on contributions to the SIMPLE plan. Many 
small business employees who are baby boomers and have not previously 
been covered under retirement plans will not be able to save enough 
under the SIMPLE plan or a 401(k) plan to provide an adequate 
retirement income. Small business needs a defined benefit retirement 
plan that is easy to administer and will provide small business 
employees, including baby boomers, a sufficient retirement benefit.
  The Secure Assets for Employees [SAFE] Plan Act of 1997 creates a new 
safe harbor defined benefit retirement plan for small business which 
will provide all small business employees with a secure, fully 
portable, benefit they can count on without choking small business with 
complex rules and regulations small business cannot afford.

  A description of our bill follows:

               Fully Funded and Secure Retirement Benefit

       SAFE plan retirement benefits will be totally secure 
     because they will be funded either through an individual 
     retirement annuity (``SAFE Annuity'') issued by regulated 
     financial institutions or through a trust (``SAFE Trust'') 
     whose investments will be restricted to registered investment 
     securities or insurance company products.
       SAFE plans will always have to be fully funded so that 
     there will be no shortfall in case of plan termination.
       SAFE plans will be required to use specified conservative 
     actuarial assumptions to ensure the minimum retirement 
     benefit.


          Minimum Defined Benefit With Possible Higher Benefit

       SAFE plans will utilize the best features of both defined 
     benefit and defined contribution plans by providing a fully 
     funded minimum defined benefit with a higher benefit if 
     investment returns exceed conservative expectations.
       At a minimum, employees will receive a benefit equal to 1%, 
     2%, or 3% of compensation for each year of service. For 
     example, if an employee whose average salary was $40,000 has 
     25 years of service for an employer who elects a 3% benefit, 
     the employee will retire with a minimum $30,000 annual 
     benefit (which could be higher depending on investment 
     performance). The percentage benefit in any year must be the 
     same for all employees.
       In order to allow baby boomers to catch-up with their 
     retirement savings, employees will be able to elect to credit 
     benefits for up to 10 prior years of service, provided such 
     benefits are credited to all employees eligible when the plan 
     is adopted.
       An employee's benefit will be 100% vested at all times.


                   Fully Portable Retirement Benefit

       Employees participating in the SAFE Annuity who separate 
     from service will automatically hold an individual retirement 
     annuity that will pay them at least the benefits they have 
     earned (and possibly a higher benefit) upon retirement. 
     Employees participating in the SAFE Trust will have their 
     retirement benefits automatically converted to a SAFE 
     Annuity, or, if they elect, have the cash balance in their 
     account transferred to an individual retirement account (a 
     ``regular IRA'').
       The benefit in a SAFE Annuity may be rolled over to another 
     SAFE Annuity without restriction. However, in order to ensure 
     adequate benefits for retirement, benefits in a SAFE Annuity 
     and SAFE Trust will be subject to substantial distribution 
     restrictions.


                          Easier to Administer

       SAFE plans will have simplified reporting requirements.
       SAFE plans will not be subject to complicated 
     nondiscrimination rules or plan limitations. However, so that 
     plan benefits are distributed fairly to all employees, SAFE 
     plans, like SIMPLE 401(k) plans, will be subject to the 
     current-law annual limit on employee compensation ($160,000).
       Since SAFE plans will be fully funded using conservative 
     actuarial assumptions, expensive Pension Benefit Guarantee 
     Corporation (PBGC) insurance premiums will not be necessary.


                      Complements the SIMPLE Plan

       SAFE plans could be used with SIMPLE plans or 401(k) plans.
       Employer eligibility, employee eligibility, and the 
     definition of compensation will be the same under the SAFE 
     plan as under the SIMPLE plan.
       As with SIMPLE, employers using a SAFE Annuity could 
     designate a single financial institution to issue the SAFE 
     Annuity.

  Mr. Speaker, it is no secret that the baby boom generation represents 
a retirement savings time bomb. We are indeed fortunate that so many 
employees of large companies enjoy retirement coverage. Those who work 
for small and independent businesses deserve no less. I would encourage 
my colleagues to join Mr. Pomeroy and me in working toward passage of 
this much-needed initiative.

                          ____________________