[Congressional Record Volume 146, Number 130 (Tuesday, October 17, 2000)]
[Senate]
[Pages S10606-S10607]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          RETIREMENT SECURITY

  Mr. BAUCUS. Mr. President, I rise to urge that Congress enact the 
Retirement Security and Savings Act, which has passed the House and 
been reported unanimously by the Senate Finance Committee. This is a 
balanced, bipartisan bill. It will encourage people to set their own 
money aside for retirement, by reforming the private pension rules and 
increasing the amount that people can put in an individual retirement 
account. It also will create two important new savings incentives. One 
is a tax credit for small businesses that set up pension programs for 
their employees. The other is a tax credit for low and middle income 
people who save for their own retirement. If, before adjourning, we can 
find a way to enact this bill, it will be a significant addition to the 
record of the 106th Congress. Let me explain why.
  The American people have many wonderful qualities. But, these days, 
unfortunately, thrift is not one of them. During the last 20 years, 
personal savings rates have consistently declined, from 9 percent of 
GDP in the 1970s to less than 1 percent now. In fact, the preliminary 
net personal savings rate for August is the lowest rate since the 
Commerce Department began keeping records in 1959. So what? Why does 
this matter?
  In the first place, a low savings rate means that less capital is 
available for new investments. Perhaps that is not a pressing issue 
right now, with a booming economy. But it should be. Over

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the long run, a low cost of capital is essential to our international 
competitiveness. On top of that, a low savings rate means that people 
aren't putting their own money away for retirement. That makes them 
more dependent on Social Security. In fact, 16 percent of today's 
retirees depend exclusively on Social Security for their retirement 
income, and two-thirds depend on it as their primary source of 
retirement income.
  We need to protect Social Security. But that is not enough. After 
all, Social Security only replaces about 40 percent of the income 
earned during our working years. If retirees continue to rely so 
heavily on Social Security, there will still be far too many Americans 
spending their retirement years one step away from poverty. We need to 
supplement Social Security, by encouraging more Americans to save for 
their retirement. And we can start by passing the Retirement Security 
and Savings Act, as reported by the Senate Finance Committee.
  As a threshold matter, the bill does two important things. First, it 
reforms the tax rules for pension plans. It makes pensions more 
portable. It strengthens pension security and enforcement. It expands 
coverage for small businesses. It enhances pension fairness for women. 
And it encourages retirement education. Second, the bill increases the 
contribution limits for individual retirement accounts. IRAs have 
proven to be a very popular way for millions of workers to save for 
retirement, particularly for those who do not have pension plans 
available through their employers. The IRA limits have not been 
increased since they were created almost two decades ago. An increase 
is long overdue. These are positive changes. However, by and large, 
they reinforce the conventional approach to retirement incentives. That 
approach can best be described as a ``top down'' approach. We create 
incentives for people with higher incomes, hoping that the so-called 
nondiscrimination rules will give the higher paid folks an incentive to 
encourage more participation by others, such as through employer 
matching programs. I do not have a problem with this approach, as far 
as it goes. But it does not do enough to reach out to middle and lower 
income workers.
  That is why I am particularly pleased that the bill goes further, by 
creating two new savings incentives. One creates a new incentive to 
encourage small businesses to establish pension plans for their 
employees. The other creates a new matching program to help workers 
save their own money for retirement. Let me discuss each in turn.
  First, the incentives for small businesses. Unlike larger companies, 
most small business owners do not offer pension plans. While three out 
of every four workers at large companies are participating in some form 
of pension plan, only one out of every three employees of small 
businesses have pensions. This leaves over 30 million workers without a 
pension plan. It is not that small businesses do not want to provide 
pension plans. They simply cannot afford to. Record-keeping 
requirements are too complex and expensive. The bill addresses this, by 
creating two new tax credits.
  The first is a tax credit of up to $500 to help defray the 
administrative costs of starting a new plan. The second is a tax credit 
to help employers contribute to a new plan on behalf of their lower 
paid employees. In effect, it is a match of amounts employers in small 
firms put into new retirement plans for their employees--up to a limit 
of 3 percent of the salaries of these workers. Taken together, these 
new incentives will make it easier for small businesses to reach out to 
their employees and provide them with a pension. In addition, the bill 
creates a new tax credit that is aimed primarily at workers who do not 
have a pension plan available to them, to encourage them to save for 
themselves.
  Only one-third of families with incomes under $25,000 are saving for 
retirement either through a pension plan or in an IRA. This compares 
with 85 percent of families with incomes over $50,000 who are saving 
for retirement. We clearly need to provide an incentive for those 
families who are not saving right now, and the individual savings 
credit included in the Finance Committee bill will provide that 
incentive.
  Here is how it works. A couple with a joint income of $20,000 is 
eligible for a 50 percent tax credit for the amount that they save each 
year, for savings of up to $2,000. People with higher incomes get a 
smaller match, up to a joint income of $50,000. According to the Joint 
Tax Committee, almost 10 million families will be eligible for the 
individual savings credit. This will provide a strong incentive for 
these families to begin setting aside money for their retirement. That, 
in a nutshell, is how the credits work. Let me respond to the common 
criticisms of the proposal.
  One is that the tax credit for low and moderate income workers is not 
refundable and therefore will not benefit lower income families that 
have no tax liability. All that I can say, in response, is that I am a 
realist. I agree that the credit should be refundable. But, this year, 
a refundable credit is not in the cards, because it generates strong 
opposition from the majority. Another criticism, from a different 
direction, is that the credit is targeted to a specific income class, 
and provides taxpayers in that income class with too much of a benefit. 
I disagree. This is not a novel approach. Many provisions of the tax 
code are phased out at higher income levels, as a way of targeting 
benefits and reducing the revenue loss.
  Another thing. By targeting lower and moderate income workers, the 
credit provides balance. The benefits of the other provisions of the 
bill go primarily to higher-paid workers. After all, if we increase the 
amount that can be deferred in a 401(k) plan more from $10,000 to 
$15,000 a year, we are only benefiting folks who can afford to make 
that much of a contribution. So a credit targeted to low and moderate 
income workers provides the overall bill with balance.
  In conclusion, I urge the leadership, on the tax-writing committees, 
in the Senate, in the House, and in the administration, to work 
together to secure passage of this important legislation. We continue 
to have a rip-roaring national economy. But many people have been left 
behind, good people, who are working hard to make ends meet. Let us 
reach out to them. Let us make an effort to give every working person 
in this country a real stake in the American dream. Maybe some young 
worker will see this tax credit and start to put away a little money 
that he or she otherwise would have spent. That money will compound, 
and so will the virtue of thrift. And that, Mr. President, will be good 
for all of us.
  The PRESIDING OFFICER. The distinguished Democratic leader is 
recognized.

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