[Congressional Record Volume 144, Number 1 (Tuesday, January 27, 1998)]
[Extensions of Remarks]
[Page E14]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       INDEXING FOR INFLATION $2,000 LIMIT FOR IRA CONTRIBUTIONS

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                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                       Tuesday, January 27, 1998

  Mr. NEAL of Massachusetts. Mr. Speaker, today I am introducing 
legislation to help those who do not have employer sponsored pension 
plans. I agree with Federal Reserve Chairman Alan Greenspan that our 
biggest economic problem is our low national saving rate. Since August 
of 1997, Americans have been setting aside only 3.8 percent of their 
personal income.
  The Taxpayer Relief Act of 1997 included tax incentives to increase 
personal saving. This new law expanded individual retirement accounts 
(IRAs) and created the Roth IRA. Under the new Taxpayer Relief Act of 
1997, an individual may contribute $2,000 to either a traditional IRA 
or a Roth IRA. This $2,000 limit has not been increased since 1981.
  This legislation would simply index the $2,000 limit for inflation in 
$500 increments. The $2,000 limit would just be increased just for 
traditional IRAs and not Roth IRAs. The reason for this is traditional 
IRAs have lower income limits and are designed to help those who do not 
have employer pension plans.
  It is important we do as much as possible to help individuals save 
for retirement. Many use IRAs as their sole source of private savings 
for retirement. The $2,000 limit has not been adjusted since 1981. This 
is a saving for retirement.
  I urge my colleagues to cosponsor this legislation. During the 105th 
Congress, I look for ward to enacting legislation which will improve 
our current pension system.
  The last provision of the bill addresses a provision of the Taxpayer 
Relief Act of 1997. The Taxpayer Relief Act of 1997 includes a 
provision which allows an employer to voluntarily cash-out employees 
from pension plans upon termination of employment if the amount is less 
than $5,000. My legislation would require this sum to be placed in an 
IRA. The purpose of this provision is to lock up this money for 
retirement savings. This sum was not taxable income for the employee 
because it was earmarked for retirement. This provision would allow the 
funds to be used for retirement.
  I urge my colleagues to review and cosponsor this legislation. 
Pension portability is a serious issue and this legislation makes 
strides towards improving it. Among all distributions that occur at job 
change, 33 percent result in an IRA rollover, 7 percent are rolled over 
to a new employee plan, and 60 percent are cashed out. We need to 
impose these statistics and the legislation I am introducing today will 
do this. Enclosed is a summary of the legislation.

                   Summary of Pension Improvement Act

       Section 1. Short Title.--This legislation is entitled the 
     ``Pension Improvement Act of 1998''.
       Section 2. Faster Vesting for Employer Contribution to 
     Defined Contribution Plans.--Reduced vesting from five to 
     three years for employer contributions to defined 
     contribution plans. Allows an option instead of 3 year 
     vesting the following schedule: at 1 year, 20 percent at 2 
     years 40 percent, at 3 years 60 percent, at 4 years 80 
     percent, and at 5 years 100 percent.
       Section 3. Employers Required to Permit Rollovers to 
     Individual Retirement Plans Within 3 Months After Separation 
     from Service.--Employer required within 90 days of 
     termination of employment to offer employee their pension 
     benefits to be rolled over into an IRA. The employee is not 
     required to take this option. Withdrawals before the taxpayer 
     reach age 59 and \1/2\ from the rollover IRA are subject to a 
     25 percent penalty for the first two years and then 10 
     percent. Current law is a 10 percent penalty on early 
     withdrawals. As under current law, the 10 percent penalty 
     would be waived for withdrawals for first time purchase of a 
     home, costs of higher education, and medical expenses.
       Section 4. Penalty-Free Distributions from Individual 
     Retirement Plans to Unemployed Individuals.--The 10 percent 
     penalty would be waived for withdrawals made if the taxpayer 
     has received unemployment compensation for twelve weeks.
       Section 5. Involuntary Cash-outs Permitted Only if 
     Distribution Rolled to an IRA.--Involuntary cash-outs of less 
     than $5,000 need to be rolled over directly into an IRA.

     

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