[Congressional Record Volume 143, Number 81 (Wednesday, June 11, 1997)]
[Senate]
[Pages S5528-S5530]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GREGG (for himself, Mr. Roth, Mr. Faircloth, Mrs. 
        Hutchison, Mr. Murkowski, Mr. Santorum, and Ms. Collins):
  S. 883. A bill to amend the Internal Revenue Code of 1986 to 
encourage savings and investment through individual retirement 
accounts, to provide pension security, portability, and simplification, 
and for other purposes; to the Committee on Finance.


         the retirement income security and savings act of 1997

  Mr. GREGG. Mr. President, I am extremely pleased to rise to introduce 
the Retirement Income, Security, and Savings Act of 1997.
  Mr. President, this bill represents the culmination of literally 
months of work by the Republican Retirement Security Task Force, which 
I chair. It embodies a collection of policies which would, if enacted, 
do a tremendous amount for a critical national need--to increase 
retirement saving and ultimately, therefore, retirement income for all 
Americans.
  It has become almost axiomatic to state that America is in dire need 
of a qualitative increase in its level of retirement saving. None of 
the three legs of the metaphorical retirement stool--Social Security, 
employer-provided pensions, and individual saving--are saving an 
adequate amount for 21st century retirement needs. Social Security is 
not really a savings program at all, but is rather funded on a pay-as-
you-go basis, the surplus loaned to the Government, to be paid back 
from general revenues at a future date. Employer-provided pensions only 
reach half of the working population, and there are problems of 
underfunding facing even the portion that are covered. And, as a 
general rule, only a few Americans are putting away sufficient saving 
on their own initiative to meet their future retirement income needs.
  I would like to take a few moments to describe the current details 
with respect to retirement income in America, and then how our package 
addresses those needs. Only then, I believe, can my colleagues fully 
appreciate the quality and importance of the policy recommendations 
that we are making.
  The typical retired American today receives retirement income from a 
variety of sources. On average, 41.7 percent comes from Social 
Security, 20.5 percent from asset income, 20.1 percent from pensions, 
14.8 percent is annually earned, and the remaining 3 percent comes from 
a variety of other sources, including welfare programs such as SSI and 
unemployment compensation.
  I would stress that this is only an average picture. The reality 
varies greatly from American to American. We need to look at the oldest 
of Americans to see the future of an aging nation. Americans currently 
80 and older receive 52.6 percent of their income from Social Security, 
whereas their pensions provide proportionally less--down to 15.3 
percent. And, of course, they are less able to earn money at this age, 
thus earnings make up only 3.9 percent of their income.

  I describe this situation because it dramatizes our future. Americans 
continue to have longer and longer life expectancies. The population 
aged 80 and older is growing faster than any other age group, 
proportionally. This are group currently receives inadequate pension 
and individual savings income, and has needed to rely more heavily on 
Social Security. The plain fact is that as America grows older, this 
group of Americans simply must have access to more in the areas of 
pension coverage and personal savings if they are to maintain a 
dignified standard of living.
  The current national picture is also not equitable with regard to the 
treatment of women. Currently, women are almost twice as likely as men 
to live in poverty in their retirement years--a 15.7 percent poverty 
rate versus an 8.9 percent poverty rate for men. For women who are 
widowed or divorced, the picture is worse still--widows suffer a 
poverty rate of 21.5 percent, divorcees 29.1 percent. Thus, the task 
force placed high priority on including provisions designed to help 
women generate saving in their own name.
  Also of note are the discrepancies in income sources between high-
income

[[Page S5529]]

and low-income Americans. Among elderly Americans in the lowest 
quintile, Social Security constitutes 82.6 percent of their income. 
Their next biggest source is public assistance--SSI, unemployment 
compensation, and other such sources--which make up 9.1 percent of 
their income stream. Thus, poorest Americans would benefit the most 
from expansions of existing pension coverage.
  Mr. President, it is, therefore, essential that this Nation pursue 
policies that increase pension and individual savings in the private 
sector. One added reason for this is the plight of Social Security. 
Thus far, Congress has not been willing to address Social Security's 
enormous unfunded liability. Under current practices, we will continue 
to pour the annual Social Security surplus into current Government 
consumption. We have no method to pay for Social Security's trillions 
in unfunded liability other than the promise of future Government 
taxation.
  Although few are willing to admit it, it is clear from the 
projections that Social Security in the 21st century will not be able 
to deliver as large a share of the income of retired Americans as it 
does today. That is simply not possible when the projected worker-to-
collector ratios for the program will hit only 2 to 1 within a 
generation. When the program is brought into balance, as it must be, 
what will happen to the millions of Americans who rely on Social 
Security for the majority of their retirement income? The answer, Mr. 
President, depends on how successful we are in providing for retirement 
income via other means.
  Our task force approached these problems in as objective a fashion as 
we could. We decided early on that the problem was one of inadequate 
saving, instead of one of inadequate regulation, or inequitable 
distribution. Indeed, many existing regulations and distribution 
requirements have actually worked against the aim of expanded pension 
coverage, because they deter employers from providing it. The result is 
that many small business owners do not believe that they can afford to 
offer pension coverage. Mr. President, we must begin to make it 
easier--in fact, we must begin to make it attractive--for employers to 
offer pensions.
  There is a single common theme that runs through the Republican 
approach to retirement security: Retirement income comes from 
retirement saving. It comes from nowhere else. Everything in our 
package aims at generating additional retirement saving in a reasonably 
direct way. Government must do more to encourage saving, and in many 
ways this is best done by doing less to discourage it. We have produced 
a package that would make it easier for additional retirement saving to 
occur, by facilitating saving via a broad variety of measures.
  That is not to say that we did not identify areas of the law where 
there were simply technical adjustments to be made. Often there are 
absurd regulatory inconsistencies in our pension structures. We 
penalize employers who do not properly fund pension plans, but on the 
other hand, we prevent others from funding the full amount of 
liabilities that they know are coming. Or we will treat employer 
contributions one way, but the contributions of the self-employed 
another way. There is a host of confusing, sometimes inconsistent, 
regulations in effect. We did our best to identify and to rectify such 
problems and inconsistencies in existing law.

  This package seeks to increase saving through individual savings 
incentives, through employer funding of pension plans, through 
simplification, through expanded portability, through defined 
contribution plans, and through defined benefit plans. We attempted to 
increase savings on every front. We cast our net wide. Thus, we have a 
package that is a veritable smorgasbord of reforms, more than Congress 
could possibly enact this year. But we have produced a host of 
proposals that are each candidates for at least partial inclusion in 
budget reconciliation, and I believe that Congress would do well to 
favorably consider them.
  Because we attempted to approach our task with this specific policy 
objective in mind--increasing savings--we did not set ourselves up to 
oppose every idea that originated in another place. The centerpiece 
proposals of our package--full IRA deductibility for every American, 
the WISE women's equity package, and the new SAFE defined benefit 
plan--are not included in the package of pension proposals offered by 
the minority party. But we did not reject some good technical 
corrections merely because they have appeared in the work of others. I 
believe that there is a basis for Congress to review the proposals 
offered separately by Republicans, and by Democrats, and to pursue many 
initiatives on which there is a broad area of common ground.
  I would like to thank Majority Leader Lott for convening the task 
force and for selecting me to be its chairman. I also wish to thank 
Senator Larry Craig for his helpful coordination of the various 
Republican task force efforts. I wish to thank each of the members of 
the Senate Republican Retirement Security Task Force--Senators Bond, 
Collins, Hutchison, Jeffords, Murkowski, Roberts, Santorum, Faircloth--
but most especially Finance Committee Chairman Senator William Roth, 
whose work was absolutely instrumental to this drafting effort. I would 
like to single out Doug Fisher of Senator Roth's staff for the 
technical advice and assistance that he provided to me and to my staff 
at every stage of this process.
  It would be appropriate at this point to say a word of appreciation 
to Senator Graham of Florida as well, for his parallel work in 
fashioning a bipartisan package of pension reforms that I understand 
will be introduced later this week. Our Republican task force has 
communicated in open and good faith with his bipartisan group, and 
there have been times when we have found ourselves working on 
overlapping ground. Senator Graham and his staff have made important 
and original contributions to a bipartisan effort to promote retirement 
security, and I believe that we can work with Senator Graham and others 
in this coalition, throughout the reconciliation process and beyond, to 
pursue reforms of common interest.
  Let me now turn to the specific provisions of our legislation.
  Title I would establish a fully deductible IRA for every American. 
The IRA is becoming a cornerstone of national retirement policy, and 
the Federal Government should not deter anyone from participating by 
limiting or eliminating the tax deductibility of the option. We endorse 
the Roth/Breaux schedule of phasing out the limits on IRA deductibility 
by 2001, and of indexing the contribution limits for inflation. We 
would also create the option of the back-loaded IRA--in which 
contributions are taxed when they are made, instead of upon 
withdrawal--in order to mitigate the revenue implications in the near-
term. Stimulating personal saving--making it attractive for every 
American to adopt the habit of contributing to an IRA each year--is an 
important first step toward meeting tomorrow's retirement income needs.
  Title II is the WISE bill introduced earlier this year. Already this 
important piece of legislation has 25 co-sponsors. These women's equity 
initiatives include a strengthening of the homemaker IRA, permitting a 
homemaker to make a fully deductible IRA contribution, regardless of 
whether his or her spouse receives an employer-provided pension. In 
addition, we would permit individuals who take maternity or paternity 
leave to make catch-up contributions to their 401-(k) or similar plans 
for the time missed from work. And--the most creative part of our 
legislation--we would permit individuals who are absent from pension 
plan participation for an extended period to raise a child--to make 
additional contributions upon return, and to catch up for up to 18 
years of absence.
  The WISE legislation is extremely popular, and I do not need 
to describe it at length here. However, I would say that it recognizes 
an important principle too frequently unrecognized in our pension law: 
That individuals do not have the same opportunities to save at every 
stage of their lives. Frequently, the financial pressures of raising a 
child prevent parents from attending to their own retirement saving. 
WISE attempts to give some flexibility, to permit individuals to put 
away more money when, at last, they have the surplus income to do so.

  Title III of our bill is targeted at expanding pension coverage in 
small

[[Page S5530]]

business. This, Mr. President, is a title of our legislation that is 
just as vital as the first two, for a number of important reasons. 
First, it is those individuals who work for small businesses who are 
most likely to lack pension coverage. Second, we felt it was very 
important in this legislation to do something to make defined benefit 
plans more attractive to employers. The task force concluded that 
removing impediments to defined contribution saving was extremely 
important, but we could not stop there: We needed to pursue parallel 
methods with respect to establishing pension coverage for individuals 
who do not have discretionary income to put into retirement savings.
  Title III of our legislation begins with the SAFE plan--a fully 
portable, fully funded, defined benefit plan designed for small 
business. This legislation attempts to make defined benefit plans a 
more realistic option for small businesses, just as the SIMPLE plan did 
last year for defined contribution plans. Because SAFE is a method of 
creating a defined benefit plan without running into the problems with 
funding and complex regulation that have deterred small businesses from 
offering other defined benefit plans, it is good for employers. And 
because it offers a defined benefit funded by the employer, rather than 
dependent upon employee contributions, it is good for lower income 
employees.
  In essence, the way SAFE works is this: An employer can choose to 
establish a SAFE plan that accrues at either a 1-percent, a 2-percent, 
or a 3-percent rate. What this means is that for every year the 
employee works, they get either 1 percent, 2 percent, or 3 percent of 
their salary as their defined benefit upon retirement. If, for example, 
the employee works for 25 years in a plan that accrues at 3 percent, 
then their retirement benefit will be 75 percent of working income. 
Everyone in the plan accrues at the same rate. So the employer can make 
a choice: If they fund at the lower rate--say, 1 percent--then they 
will diminish the size of their own pension benefits as well as that of 
their employees. By treating all employees equally, across the board, 
SAFE bypasses the need for complex nondiscrimination requirements. Fair 
treatment is assured by the basic construction of the plan.

  SAFE plans are fully funded by the employer. The employer must fund 
the benefits such that, when a 5 percent interest rate is assumed, 
enough will be present at time of retirement to pay the defined 
benefit. If the employer is able to do better, in managing the plan, 
then that 5 percent interest rate, then the extra goes back into the 
pension benefits. Annually, the plan is monitored to ensure that the 
employer has kept pace with that 5 percent rate. If not, then the 
employer must make a makeup contribution at year's end. So, in all 
events, the pension benefits are protected. It is annually assured that 
the promised benefits are fully funded, and it is also possible that 
the beneficiary will receive more. Moreover, because each individual's 
pension benefit is fully funded in advance by a defined amount, it is 
fully portable--the benefit can travel with the employee easily when 
they switch jobs.
  The SAFE plan gives a small business owner the opportunity to create 
a simple defined benefit plan that has the potential to provide large 
pension benefits--for both the employees and the employer. Because of 
that potential and its resulting incentive, and because of the 
protection from messy discrimination rules, SAFE plans will be an 
attractive alternative for small businesses. And by creating this 
alternative, we increase the opportunities for lower income individuals 
to receive defined benefit pension coverage that they might not be able 
to fund via a defined contribution system.
  It will take too much of the Senate's time to list every aspect of 
our comprehensive legislation, but I invite Senators to review this and 
other provisions we have created to make pensions more attractive to 
small business owners in title III of the bill.
  Title IV contains assorted measures to ensure pension portability. 
This is essential in a mobile society such as ours, in which pension 
coverage is lowest among short-tenured young workers, moving from job 
to job. We do not generate retirement saving if these pension benefits 
simply turn into a cash-out every time one changes jobs. Our 
legislation would protect plans that accept rollovers from 
disqualification, and also specifically facilitate rollovers between a 
large variety of plans--government plans, nonprofit plans, and others.

  Title V of the legislation deals with pension security. We felt it 
was important to highlight our finding that pension managers have an 
obligation to comply with the intent of ERISA, which directs that they 
manage these plans with an eye solely toward maximizing the 
accumulation of pension assets, not pursuing an external purpose, 
whether social, political, or any other. Accordingly, we would 
eliminate the promotion of the Department of Labor's Economically 
Targeted Investments Program. The last thing that we want, Mr. 
president, is for pension managers to feel pressured into investing in 
any vehicles that they do not believe meet the best interests of future 
pension beneficiaries. To the extent that these economically targeted 
investments produce healthy, sound investments, they do not need 
promotion by the Department of Labor. To the extent that they do not, 
pension managers should not invest in them.
  Also in title V, Mr. President, is an important provision that 
gradually increases the current limitation on full employer funding of 
pension liabilities. Right now, employers may fund for no more than 150 
percent of current liability, even when they may know that future 
liabilities are accruing and must be funded. This is short-sighted 
policy by the Federal Government, undertaken solely to protect the 
Federal balance sheet, by limiting the tax deductibility of pension 
contributions. I would argue that this existing policy, in the long 
run, does not even protect the Federal balance sheet, because 
ultimately, these liabilities must be funded, and the deduction 
therefore taken. It is better to permit employers to invest the money 
now, and to let that investment compound to meet future liabilities, 
rather than to forbid them from doing so, and thereby force them to 
make a larger contribution later--and then claim an even larger 
deduction. We must take a far-sighted approach to funding pensions, and 
not discourage proper pension funding simply because we are looking at 
a short-term budget window here in the Federal Government. Our 
provision would gradually increase the 150 percent limit, by 5 percent 
every 2 years.
  Finally, title VI deals with another vital area of pension reform--
pension simplification. In this title, Mr. President, Senators will 
find a host of changes that eliminate existing inconsistencies within 
law and regulation, as well as facilitating the use of electronic 
technology to replace cumbersome paperwork. I would draw the attention 
of the Senate to one particular provision here that would exempt 
Government plans from existing nondiscrimination rules. These 
nondiscrimination rules, Mr. President, were not designed for 
Government plans, and it has proved very vexatious to determine how to 
apply them in cases when the employer is a government body. I believe 
that many Senators have probably heard from administrators of State 
government retirement plans regarding the need to make this exemption 
permanent, and our bill would do so. This is one provision, Mr. 
President, that I believe we should seek to include in budget 
reconciliation this year.
  Mr. President, I am very proud to introduce this legislation. Tax law 
in this area is complicated and dry--I have become too familiar with 
that these last months--but it is imperative that we shoulder the 
burden of reforming it to make it work more simply, and more 
effectively, to encourage greater retirement income saving. I have 
worked long and hard to create this legislation, and I believe that it 
represents a good comprehensive effort to enhance the future retirement 
security of millions of Americans. I thank the rest of the task force, 
and the majority leader, for this opportunity to lead in this important 
work, and I commend this legislation to the Senate for its favorable 
consideration.
                                 ______