[Congressional Record Volume 144, Number 41 (Thursday, April 2, 1998)]
[Extensions of Remarks]
[Pages E579-E581]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


INTRODUCTION OF THE EMPLOYEE PENSION PORTABILITY AND ACCOUNTABILITY ACT

                                 ______
                                 

                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                        Wednesday, April 1, 1998

  Mr. NEAL of Massachusetts. Mr. Speaker, today I am introducing 
extremely important legislation that will benefit working Americans. 
The focus of this legislation is pensions. Pensions are an integral 
part of retirement. Retirement can be compared to a three legged stool 
and the three legs are savings, pensions, and Social Security.
  We are beginning to face what has been commonly referred to as the 
``graying of America.'' Within thirty years, one our of every five 
Americans will be over age sixty-five. In thirteen years, the baby 
boomers will begin turning sixty-five. The baby boomer generation 
consists of 76 million members and will result in the number of Social 
Security beneficiaries doubling by the year 2040.
  In the near future, we need to address Social Security, but in the 
immediate future Congress should take action to improve our current 
pension system. Last Congress, Congressman Thomas and I worked on 
``Super IRA'' legislation and many of these proposals were included in 
the Taxpayer Relief Act of 1997. Expanding individual retirement 
accounts (IRAs) will help many save for their retirement.
  The Taxpayers Relief Act of 1997 created the Roth IRA which has made 
IRAs more available to millions of taxpayers. The response has been 
overwhelming. The Taxpayer Relief Act has jump-started IRAs and we need 
to do the same for pensions.
  Forty percent of retirement income comes from Social Security. 
Nineteen percent comes from pensions and the rest comes from individual 
savings. We need a more balanced approach. Pensions should provide for 
more than 19 percent of savings. We need to make individuals more 
responsible for their retirement.
  Our society has changed and this includes the workplace. It is now 
more common for individuals to change jobs than to stay with one firm 
for an entire career. This makes it extremely important for us to 
address pensions and especially the issue of portability. Changing jobs 
should not drastically affect one's pension.
  Millions of Americans have no pension access to retirement plans. 
Only half of full-time, private sector workers participate in an 
employer-sponsored pension plan. This results in 51 million American 
workers who have no pension plan. Pension coverage has only increased 
to 50 percent in 1993 from 48 percent in 1983.
  Small businesses are less likely to have pensions than large 
businesses. While only thirty percent of firms that employ between 25 
and 49 employees have pensions, seventy-three percent of firms that 
employ over 100 employees have pensions. Only 85 percent of Americans 
making below $10,000 a year have pension coverage. Fewer women receive 
pensions than men.
  The percentage of the workforce covered by a pension has stagnated in 
the last 20 years. Many firms cite complexity and start-up costs as 
major reasons for not offering pensions.

[[Page E580]]

  Portability is an issue that must be addressed as we improve our 
pension system. Five million people with pension coverage change jobs 
every year. Many workers lose out on their pensions because they leave 
their jobs before their pensions vests.
  President Clinton's budget for FY 1999 included comprehensive pension 
proposals. The proposals are aimed at making it easier for employers to 
offer pensions and for employees to retain pensions when switching 
jobs. The President's proposals are targeted to promoting pension plans 
among small businesses. These proposals build on past efforts of the 
President and Congress to simplify pensions. The President's measures 
would boost private pensions and individual retirement savings. I 
applaud President Clinton for addressing pensions in a timely manner.
  Today, I am introducing ``The Employee Pension Portability and 
Accountability Act of 1998'' which is based on the President's pension 
proposals. I have made one change to the President's proposals as 
described in the budget. After reviewing testimony submitted to the 
Ways and Means Oversight Subcommittee, I have decided to make our 
change to the SMART plan and I will go into more detail later.
  This legislation will enhance workers' ability to contribute to an 
IRA by payroll deduction. The bill will provide a tax credit for small 
businesses with fewer than 100 employees for the start-up costs of a 
pension plan.
  The legislation creates a new simplified defined benefit pension 
plans for small businesses with fewer than 100 employees called the 
SMART plan. The SMART plan is a broad based approach that provides 
participants with a guaranteed minimum annual benefit upon retirement. 
An employee's benefit would be 100 percent vested at all times. I have 
eliminated the professional employer exclusion from the SMART plan. 
Under the Administration's proposal, professional employers would not 
be eligible to offer a SMART plan. However, I will continue to work 
with the Department of Treasury to improve this legislation so that it 
is specifically targeted to low and moderate income workers.
  The bill allows for faster vesting of employer matching contributions 
to defined contribution plans. Vesting for the employer match would 
occur at three years instead of five years. This should help with 
portability.
  The bill will also include the expansion of right-to-know provisions 
for workers and spouses; and simplification proposals. These proposals 
will help reduce the paper work associated with pensions.
  The above described legislation is targeted to improve pensions in 
the areas where I believe the most improvement is needed--coverage for 
small businesses and portability. Now is the time for Congress to act. 
We cannot overlook the statistics. We have to address the ``graying of 
America.''
  I urge my colleagues to cosponsor the ``Employee Pension Portability 
and Accountability Act of 1998.'' I look forward to the passage of 
bipartisan pension legislation. Enclosed is a detailed section by 
section of the bill.

    The Employee Pension Portability and Accountability Act of 1998


                           Section by Section

     Section 1. Short Title
       This legislation is entitled as the Employee Pension 
     Portability and Accountability Act of 1998.
     Section 2. Payroll Deduction for Retirement Savings
       This section is intended to promote increased retirement 
     savings among employees. Employees could elect to have 
     contributions, up to a total of $2,000, withheld during the 
     year from their paychecks and contributed to an IRA. Under 
     this section, employees who are eligible for a deductible 
     IRA, could elect to have pre-tax contributions withheld by 
     their employer and deposited in their IRA. These IRA 
     contributions generally would be excluded from taxable income 
     on the W-2 rather than deducted from income on the 
     individual's tax return. However, the amounts would be 
     subject to employment taxes (FICA) and would be reported as 
     contribution to an IRA on the employee's Form W-2. If at the 
     end of the year, the employee is determined not to be 
     eligible for any portion of the $2,000 contribution, the 
     employee would be required to include such amount as income 
     for that taxable year.
       The legislative history under this section also would 
     clarify that employees not eligible for a deductible IRA 
     could use payroll deductions of after tax amounts as 
     contributions to a non-deductible IRA or Roth IRA. Such an 
     arrangement would not constitute the employer sponsoring a 
     plan.
       The provision would be effective for taxable years 
     beginning after December 31, 1998.
     Section 3. Credit for Pension Plan Startup Costs of Small 
         Employees
       The credit provided under this section is intended to be an 
     additional incentive to employers, especially small 
     employers, who may not otherwise establish a plan because of 
     high start-up costs. Under this section, the employer could 
     claim a credit for up to three years after establishing a new 
     qualified defined benefit plan or defined contribution plan 
     (including a section 401(k)), a SIMPLE, SEP, or IRA payroll 
     deduction arrangement. The credit for the first year of the 
     plan is 50 percent of up to $2,000 in administrative and 
     retirement education expenses. For the second and the third 
     year, the credit would be 50 percent of up to $1000 of start-
     up costs.
       For purposes of the credit, an eligible employer is an 
     employer who maintained no more than 100 employees in the 
     preceding tax year and the compensation of each employee was 
     at least $5,000 for the year. The employer would be eligible 
     only if such employer did not have a retirement plan prior to 
     establishing the new plan. In addition, the new plan must 
     cover at least 2 employees, and must be made available to all 
     employees who have worked with the employer for at least 
     three months.
       The credit is effective beginning in the year of enactment 
     and would be available only for plans established on or 
     before December 31, 2000. Thus, if an eligible employer 
     established a plan in the year 2000, the credit would be 
     available for the years 2000, 2001, and 2002.
     Section 4. Secure Money Annuity or Retirement (SMART) Trusts
       This section creates a simplified defined benefit plan. As 
     in all defined benefits plans, contributions are made by the 
     employer. The plan would be available to employers with no 
     more than 100 employees who received at least $5,000 in 
     compensation in the prior year. In addition, the employer 
     could not have maintained a defined benefit plan or a money 
     purchase plan within the preceding five years. The plan 
     generally would be available to all employees who have 
     completed two years of service with the employer and earned 
     at least $5,000 in compensation. Like all other qualified 
     pension plans, contributions to the SMART plan would be 
     excludable from income, earnings would be accumulated tax-
     free, and distributions at the time of distribution would be 
     subject to income tax (unless rolled over). Participants 
     would be guaranteed a minimum annual benefit upon retirement, 
     but could receive a larger benefit if the return on plan 
     investments exceeds specified conservative assumptions. The 
     employee would be guaranteed a minimum annual benefit upon 
     retirement which would be equal to 1 or 2 percent of the 
     employee's compensation plus a minimum rate of return of 5 
     percent. The minimum annual benefit would be computed based 
     on the employee's average compensation with the employer, the 
     number of years worked, and the percentaged elected by the 
     employer. Thus an employee with 25 years of service, whose 
     average salary was $50,000, and whose employer elected a 2-
     percent benefit would receive an annual benefit of $25,000 at 
     retirement (age 65). The guaranteed benefit requirement 
     result in some employers making additional contributions to 
     the employee's account if the rate of return plus the 
     contributions do not produce sufficient assets to pay the 
     minimum guaranteed benefit. If the rate of return exceeds 5 
     percent, the employee would receive a benefit greater than 
     the minimum guaranteed benefit. The Pension Benefit Guarantee 
     Corporation (PBGC) would provide insurance to ensure the 
     payment of the guaranteed benefit.
       To permit catch-up contributions on behalf of workers 
     (especially workers nearing retirement age) for the years a 
     retirement plan was not available, an employer could elect a 
     benefit equal to 3 percent of compensation for the first 5 
     years the plan is in existence. This higher percentage would 
     be elected in lieu of 1 or 3 percent and would have to be 
     made available to all employees. The maximum amount of 
     compensation that could be taken into account for purposes of 
     determining the annual benefit would be $100,000, indexed for 
     inflation.
       Employees would immediately vest in the benefits 
     contributions made and earnings that accrue under the plan. 
     Benefits in the account would be treated as all other 
     qualified pension plans, i.e. the contributions or earnings 
     would not be taxable to the employee in the year made (or 
     earned) and the employer would be permitted to deduct 
     currently the contribution made to the plan. Distributions 
     from the plan would be taxable to the employee upon 
     distribution except where the balance is directly rolled over 
     from a SMART plan to another SMART plan by the trustee of the 
     plan.
       The provision would be effective for calendar years 
     beginning after December 31, 1998.
     Section 5. Faster Vesting of Employer Matching Contributions
       This section changes the vesting requirement for employer 
     contributions. Under current law, employer matching 
     contributions vest after either 5 years cliff vesting or 7 
     years graded vesting. Under the 5-year vesting, an employee 
     becomes fully vested (i.e. full rights) to employer 
     contributions after the employee has completed five years of 
     service with the employer. If the years of service are less 
     than 5 years the employee does not vest to any portion of 
     contributions. Under 7-year graded vesting, the employee 
     becomes fully vested to the employer contributions in 
     increments of 20 percent, which begins after the employee 
     completes three years of service, and is fully vested after 
     seven years of service. Under this provision, the 5-year 
     vesting and 7-year vesting schedules would be modified to 
     provide for 3-year cliff vesting and 6-year graded vesting. 
     The six-year vesting would begin after the employee has 
     completed two years of service. The vesting schedules would 
     apply for all

[[Page E581]]

     employer matching contributions made under any qualified 
     plan.
       The provision would be effective for plan years beginning 
     after December 31, 1998.
     Section 6A. Pension Right to Know Proposals
       This provision would modify current law with respect to a 
     written waiver of a survivor annuity. Under current law, the 
     plan participant (not the spouse) is provided with a written 
     explanation of the terms and conditions of the survivor 
     benefit. This provision would require that the same written 
     information provided to the plan participant also is provided 
     to the spouse. This would help the spouse to fully understand 
     both his or her rights under the plan, and the full 
     implication of a waiver of those rights.
       This provision would be effective for plan years beginning 
     after December 31, 1998.
     Section 6B. Right to Know Pension Plan Distribution 
         Information
       This provision would require employers who use any one of 
     the 401(k) safe harbor plan designs to provide employees with 
     sufficient notice that would afford them the real opportunity 
     to make an informed decision regarding electing to contribute 
     (or modify a prior election) to the employer-sponsored plan. 
     The employee would be provided at least a 60-day period 
     before the beginning of each year and a 60-day period when he 
     or she first becomes eligible to participate. In addition, 
     the current requirement that employers notify eligible 
     employees of their rights to make contributions, as well as 
     notify them of the employer contributions formula being used 
     under the plan, would be modified to require that such notice 
     be given within a reasonable period of time before the 60-day 
     period, rather than before the beginning of the year.
       This provision would be effective for plan years beginning 
     after December 31, 1998.
     Section 7. Mandatory 1 Percent Employer Contribution required 
         under alternative methods of meeting nondiscrimination 
         requirements for 401(k) plans
       This section modifies the section 401(k) matching formula 
     safe harbor by requiring that, in addition to the matching 
     contribution, employers would make a contribution of 1 
     percent of compensation for each eligible nonhighly 
     compensated employee, regardless of whether the employee 
     makes elective contributions. This contribution shows the 
     value of tax-deferred compounding. This provision would 
     not apply where the employer uses the safe harbor design 
     under which the employer contributes 3 percent of 
     compensation on the behalf of each eligible employee 
     without regard to whether the employee makes an elective 
     contribution.
       This provision would be effective for plan years beginning 
     after December 31, 1998.
     Section 8. Definition of Highly Compensated Employees
       Under current law, a highly compensated employee is defined 
     as an employee who was a five percent owner of the employer 
     at any time during the proceeding year, or had compensation 
     of $80,000, and if the employer elects was in the top-paid 
     group of employees for the preceding year. An employee is in 
     the top-paid group if the employee was among the top 20 
     percent of employees of the employer when ranked on basis of 
     compensation paid to employers in previous years. This 
     section eliminates the top-paid group from the definition 
     highly compensated employee. Thus, the level of compensation 
     earned or ownership determine whether the employee is highly 
     compensated.
       This provision would be effective for plan years beginning 
     after December 31, 1998.
     Section 9. Treatment of Multiemployer Plans Under Section 415
       This section would repeal the 100 percent-of-compensation 
     limit, but not the $130,000 limit for such plans, and exempts 
     certain survivor and disability benefits from the adjustments 
     for early commencement and participation and service of less 
     than 10 years.
       This provision would be effective for plan years beginning 
     after December 31, 1998.
     Section 10. Full Funding Limitation for Multiemployer Plans
       This Section would eliminate the limit on deductible 
     contributions based on a specified percentage of current 
     liability. The annual deduction for contributions to such a 
     plan would be limited to the amount by which the plan's 
     accrued liability exceeds the value of the plan's assets.
       This provision would be effective for plan years beginning 
     after December 31, 1998.
     Section 11. Elimination of Partial Termination Rules for 
         Multiemployer Plans
       Under current law, when a qualified retirement plan is 
     terminated, all plan participants are required to become 100 
     percent vested in their accrued benefits to the extent those 
     benefits are funded. In the case of certain ``partial 
     termination'' that is not actual plan termination, all 
     affected employees must become 100 percent vested in their 
     benefits accrued to the date of the termination, to the 
     extent the benefits are funded. Partial terminations 
     generally occur when there is a significant reduction in 
     workforce covered by the plan. This section repeals the 
     requirement that affected participants become 100 percent 
     vested in their accrued benefits upon the partial termination 
     of qualified multiemployer retirement plans.
       This provision would be effective for partial termination 
     beginning after December 31, 1998.

     

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