[Congressional Record Volume 146, Number 89 (Wednesday, July 12, 2000)]
[Senate]
[Page S6575]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY:
  S. 2853. A bill to amend the Internal Revenue Code of 1986 to allow 
distributions to be made from certain pension plans before the 
participant is severed from employment; to the Committee on Finance.


                 phased retirement programs facilitated

 Mr. GRASSLEY. Mr. President, today I am introducing a bill to 
amend the Internal Revenue Code. My bill will facilitate phased 
retirement programs. In April I held a hearing in the Special Committee 
on Aging. The subject of the hearing was employment of older workers. 
Several experts told us what could be done to encourage older 
individuals to remain in the labor market. In today's tight labor 
markets, older workers are in great demand. Employers have numerous 
strategies to attract and retain them--one of those is phased 
retirement.
  At our hearing, several witnesses testified that statutory changes to 
permit phased retirement programs would be helpful. One of those 
witnesses was Ms. September Dau from the Iowa Lakes Rural Electric 
Cooperative in Estherville, Iowa. Ms. Dau noted that the average age of 
the workforce at her Rural Electric Cooperative is high. Skilled 
workers are hard to come by and Iowa Lakes has implemented a phased 
retirement program in order to retain older workers. But they would 
like the comfort of knowing that their program is sanctioned.
  Phased retirement allows a worker to wind down his or her career, by 
working part-time and retiring part-time. It helps many people maintain 
their income level rather than quitting work all at once. Financially, 
it can allow an individual to postpone the time when he or she has to 
draw down retirement savings. A study performed by Watson Wyatt 
Worldwide concluded that 16 percent of larger companies already offer 
phased retirement in some form and another 28 percent show a moderate 
to high level of interest in offering it in the next two years. But 
plan sponsors have worries about running afoul of the ``in-service 
distribution'' rules. Tax rules bar employees from receiving pension 
distributions before they reach a pension's normal retirement age, 
which is usually pegged to Social Security. That rule makes it 
difficult for those who wish to retire gradually and use reduced 
pension payments to augment reduced pay. It also helps circumvent the 
``do-it-yourself'' phased retirement that some workers are forced into 
where they retire one day from their long-term employer and go to work 
the next day for someone else. This bill is designed to overcome those 
problems. At the same time, this provision is completely voluntary and 
so will not burden plan sponsors.
  As I said, we heard from witnesses who supported phased retirement 
programs. I mentioned September Dau from the Iowa Lakes Rural Electric 
Cooperative. But another one was our friend and colleague, Congressman 
Earl Pomeroy of North Dakota. Congressman Pomeroy told the Committee 
that phased retirement programs should be allowed as a way of 
increasing the attractiveness of defined benefit pension plans. Phased 
retirement programs could also make defined benefit plans more 
adaptable to the human resource needs of plan sponsors. This is 
important to Congressman Pomeroy because he is introducing a phased 
retirement bill that is identical to mine.
  Defined benefit plans provide a stream of payments to retirees. They 
can go a long way to supplementing Social Security. But defined benefit 
plans are on the decline, especially among small businesses, whose 
employees are the least likely group to be covered by any form of 
retirement plan. We know that life expectancy is increasing. We also 
know that Americans are not saving enough to maintain their standard of 
living in retirement. By making defined benefit plans more attractive 
to employers and workers--such as by facilitating phased retirement--we 
are helping to improve the lives of everyday American people.
  I hope that this bill is one step in that direction.
  I ask unanimous consent that a copy of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2853

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. CERTAIN PENSION DISTRIBUTIONS ALLOWED BEFORE 
                   SEVERANCE FROM EMPLOYMENT.

       (a) In General.--Section 401(a) of the Internal Revenue 
     Code of 1986 (relating to qualified pension, profit-sharing, 
     and stock bonus plans) is amended by inserting after 
     paragraph (34) the following new paragraph:
       ``(35) Distribution prior to severance from employment.--A 
     trust forming part of a defined benefit plan (or a defined 
     contribution plan which is subject to the funding standards 
     of section 412) shall not constitute a qualified trust under 
     this section if the plan provides a distribution to a 
     participant who has not been severed from employment and the 
     distribution is made before the earliest of the following 
     with respect to the participant:
       ``(A) Normal retirement age (as defined in section 
     411(a)(8)).
       ``(B) Attainment of age 59\1/2\.
       ``(C) The date the participant completes 30 years of 
     service.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 
     2000.
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