[Congressional Record (Bound Edition), Volume 145 (1999), Part 4]
[Extensions of Remarks]
[Pages 5142-5144]
[From the U.S. Government Publishing Office, www.gpo.gov]




          EMPLOYEE PENSION PORTABILITY AND ACCOUNTABILITY ACT

                                 ______
                                 

                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                         Monday, March 22, 1999

  Mr. NEAL of Massachusetts. Mr. Speaker, today I am introducing the 
Administration's pension proposals contained in its fiscal year 2000 
budget submission to the 106th Congress. These proposals build on 
previous efforts to improve the chances for every American to have a 
secure retirement of which an adequate level of retirement income is a 
crucial factor. The proposals are aimed at making it easier for 
employers to offer pension plans, and for employees to retain their 
pension benefits when switching jobs. Proposals to encourage small 
businesses to establish pension plans, and to encourage more 
individuals to utilize retirement accounts are included. In addition, 
the Administration's pension proposals also contain numerous 
simplification initiatives.
  As we all know, it is assumed that every worker will have retirement 
income from three different sources--social security, private pensions, 
and personal savings. This so-called three-legged stool does not exist 
for many workers, either because they work for employers who do not 
offer a pension plan, or the benefits offered are inadequate, or 
because some employees earn too little to save for their retirement on 
their own. While the 106th Congress is expected to address the problems 
of the social security system, it is imperative that this Congress 
expand and improve the private pension system as well.
  Many workers, like federal workers in FERS, are eligible to save for 
their retirement through social security, a defined benefit plan, a 
defined contribution plan, and hopefully through personal savings. In 
general, employers in the private sector, however, have moved away from 
offering defined benefit plans, much to the detriment of overall 
retirement savings. Since 1985, the number of defined benefit plans has 
fallen from 114,000 to 45,000 last year. The number of defined 
contribution plans, conversely, has tripled over the last twenty years. 
While defined contribution plans have the advantage of being highly 
portable, and are an important source of savings, it is also important 
to remember that defined contribution plans were intended to 
supplement, rather than be a primary source of, retirement income.
  In addition, we cannot ignore the fact that women and minorities face 
special challenges in obtaining adequate retirement savings. For women, 
this is directly related to employment patterns. Women are more likely 
to move in and out of the workforce to take care of children or 
parents, work in sectors of the economy that have low pension coverage 
rates, and earn only 72 percent of what men earn. Fifty-two percent of 
working women do not have pension coverage, and 75 percent of women who 
work part-time lack coverage. For minorities, lack of pension coverage 
and a lower pension benefit level is often related to low wages. While 
52 percent of white retirees receive an employment-based pension at age 
55, only 32 percent of Hispanic Americans and 40 percent of African 
Americans receive such pensions.
  While these problems cannot be solved overnight, it is necessary for 
us to make improvements in the pension system whenever there is an 
opportunity. I believe we have been provided with just such an 
opportunity in this Congress, and we should seize that opportunity. The 
Administration's proposals incorporated into this bill take an 
important step forward. I encourage my colleagues to join me in making 
improved pensions a reality for many American workers.

    The Employee Pension Portability and Accountability Act of 1999


                           section by section

     Section 1. Short Title.
       This legislation is entitled the Employee Pension 
     Portability and Accountability Act of 1999.
     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 to their IRA. These IRA contributions 
     generally would be excluded from taxable income on the W-2 
     rather than deducted from

[[Page 5143]]

     income on the individual's tax return. However, the amounts 
     would be subject to employment taxes (FICA) and would be 
     reported as contributions 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 amounts 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 nondeductible 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, 1999.
     Section 3. Credit for Pension Plan Startup Costs of Small 
         Employers.
       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 such 
     expenses.
       For purposes of the credit, an eligible employer is one who 
     employs 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 Trusts (SMART).
       This Section creates a simplified defined benefit plan. As 
     in all defined benefit 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 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 
     plans, contributions to the SMART plan would be excludable 
     from income, earnings would be accumulated tax-free, and 
     distributions at the time the distribution is made 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 the plan 
     assets 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 percentage 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 could 
     result in some employers making additional contributions to 
     the employees' 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 Guaranty 
     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 2 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 contributions made 
     and the 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 
     contributions 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, 1999.
     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 is less 
     than 5 years, the employee does not vest in any portion of 
     the 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 
     cliff and the 7-year graded vesting schedules would be 
     modified to provide for 3 year cliff vesting and 6 year 
     graded vesting. The 6 year vesting would begin after the 
     employee has completed two years of service. The vesting 
     schedules would apply for all employer matching contributions 
     made under any qualified plan.
       The provision would be effective for plan years beginning 
     after December 31, 1999.
     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 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, 1999.
     Section 6B. Right to Know Pension Plan Distribution 
         Information.
       This provision would require employers who use 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, 1999.
     Section 7. Mandatory 1 Percent Employer Contribution Required 
         Under Alternative Methods of meeting Nondiscrimination 
         Requirements for 401(k) Plans.
       This Section modifies 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 non-highly 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, 1999.
     Section 8. Definition of Highly Compensated Employees.
       Under current law, a highly compensated employee is defined 
     as an employee who was a 5 percent owner of the employer at 
     any time during the preceding 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 employees in previous years. This 
     Section eliminates the top-paid group from the definition 
     highly compensated employee. Thus, the level of compensation 
     earned or ownership determines whether the employee is highly 
     compensated.
       This provision would be effective for plan years beginning 
     after December 31, 1999.
     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. Also, it 
     would exempt certain survivor and disability benefits from

[[Page 5144]]

     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, 1999.
     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 dedication 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, 1999.
     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 plan.
       This provision would be effective for partial terminations 
     occurring after December 31, 1999.
     Sec. 12. Rollovers Between Qualified Retirement Plans and 
         Section 403(b) Tax-Sheltered Annuities.
       Under current law, rules governing eligible rollover 
     distributions do not permit rollover of funds from a section 
     403(b) tax-sheltered annuity to another type of qualified 
     retirement plan. Amounts saved in a section 403(b) tax-
     sheltered annuity only can be rolled over to another section 
     403(b) tax-sheltered annuity. This Section would allow an 
     eligible rollover distribution to be rolled over to a 
     qualified retirement plan, a section 403(b) tax-sheltered 
     annuity, or a traditional IRA. Also, an eligible rollover 
     distribution from a section 403(b) tax-sheltered annuity, 
     could be rolled over to another section 403(b) tax-sheltered 
     annuity, a qualified retirement plan, or a traditional IRA.
       This provision would be effective for distributions after 
     December 31, 1999.
     Sec. 13. Rollover of Contributions From Non-Qualified 
         Deferred Compensation Plans of State and Local 
         Governments to IRAs.
       Current law does not permit participants of eligible non-
     qualified deferred compensation plans of States and local 
     governments (section 457 plans) to roll over distributions 
     from these plans to an IRA. This Section would allow 
     participants of section 457 plans to roll over distributions 
     from these plans to an IRA.
       This provision would be effective for distributions after 
     December 31, 1999.
     Sec. 14. Rollover of IRA Contributions To A Qualified 
         Retirement Plan.
       Current law does not allow contributions made to an IRA, 
     not including rollover contributions from a qualified 
     retirement plan or a section 403(b) tax-sheltered annuity, to 
     be rolled over to an employer-sponsored qualified retirement 
     plan. This provision would allow individuals to roll over 
     these traditional IRA contributions to a qualified plan, 
     including section 403(b) tax-sheltered annuities.
       This provision would be effective for distributions after 
     December 31, 1999.
     Sec. 15. Rollover of After-Tax Contributions.
       Current law permits employees to make after-tax 
     contributions to qualified retirement plans but they are not 
     allowed to roll over distribution of these amounts either to 
     an IRA or a qualified retirement plan. This provision would 
     allow employees to roll over their after-tax contributions as 
     part of an eligible rollover to a traditional IRA or an 
     employer-sponsored qualified plan provided that the receiving 
     plan or IRA provider agrees to track and report the after-tax 
     portion of the rollover contribution for the individual.
       This provision would be effective for distributions after 
     December 31, 1999.
     Sec. 16. Purchase of Service Credit in Governmental Defined 
         Benefit Plans.
       This provision would permit employees of State and local 
     governments, particular teachers, who often move between 
     States and school districts in the course of their careers to 
     make tax-free transfers from their section 403(b) tax-
     sheltered annuities of governmental section 457 plans to 
     purchase service credits under their defined benefit plan.
       This provision would be effective for distributions after 
     December 31, 1999.
     Sec. 17. Modifications to Joint and Survivor Annuity 
         Requirements.
       This provision would modify current law to provide that 
     retirement plans which are required to provide a joint and 
     survivor annuity option must include the option under which 
     the plan participant could elect to receive a lifetime 
     benefit equal to at least 75 percent of the benefit, to be 
     paid to the surviving spouse, the couple received while both 
     were alive. Under current law, a joint survivor annuity 
     provides for a benefit of 50 percent of the benefit received 
     while both are alive.
       This provision would be effective for plan years beginning 
     after December 31, 1999, with an extended effective date for 
     plans maintained pursuant to a collective bargaining 
     agreement.
     Sec. 18. Period of Family and Medical Leave Treated as Hours 
         of Service for Pension Participation and Vesting.
       This provision would allow leave taken by an employee under 
     the Family and Medical Leave Act (FMLA) to be taken into 
     account for purposes of (a) determining the employee's 
     eligibility to participate in the employer-sponsored plan, 
     and (b) vesting in benefits accrued to the employee's 
     retirement account/plan.
       This provision would be effective for plan years beginning 
     after December 31, 1999.

     

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