THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release May 23, 1996
FACT SHEET
"Retirement Savings and Security Act"
Millions of Americans do not have adequate retirement savings and are worried about their retirement and being a burden on their children. The Retirement Savings and Security Act would empower more Americans to save for their retirement by expanding pension coverage, portability, and protections. The Act:
The Retirement Savings and Security Act meets these challenges with a five-part plan:
$5,000 Tax-Deferred Contributions. Workers could save
up to $5,000 a year tax-deferred through automatic
payroll deductions, in addition to employer
contributions.
Employers Contribute Three Percent of Salary or One
Percent Plus a Match of Up To Five Percent of Salary.
One-Page Form. Cuts through the red tape with a
simple, one-page form without complicated employer
filing, calculations, or testing.
100 Percent Portable. All contributions would be
immediately vested and fully portable.
The Retirement Savings and Security Act expands
coverage in many other ways as well. It: (1) simplifies
401(k) plans for all businesses as recommended by Vice
President Gore's Reinventing Government initiative;
(2) makes the nine million employees of non-profit
organizations eligible for 401(k) plans and enables
relatives who work in a family business to earn their
own retirement benefits; and (3) repeals unreasonable
limits on benefits for certain low- and middle-income
workers who are disabled, union, or State or local
government employees.
2. Expanded Individual Retirement Accounts (IRAs) -- To
Increase Pension Coverage and Portability. Deductible IRAs
are available to families who have pension coverage only if
household income is under $50,000, and generally can be
withdrawn penalty-free only after age 59?. The Retirement
Savings and Security Act makes IRAs more attractive and
expands eligibility to 20 million more families:
Allows Withdrawals for Education and Training, First
Home Purchases, Major Medical Expenses, and During
Long-Term Unemployment: Allows penalty-free IRA
withdrawals for these major life expenses to encourage
more families to save.
Doubles Income Eligibility: The Act doubles the
income limits from $50,000 to $100,000 for married
couples, and from $35,000 to $70,000 for single
taxpayers for a deductible IRA where a family member
has pension coverage. More middle-class families --
especially those with two earners -- would be eligible
for this expanded IRA that reduces taxes by up to
$1,120 a year.
3. Increases Pension Portability. Workers who change jobs and
want to take their retirement savings with them and keep
saving currently face a multifaceted obstacle course. The
Retirement Savings and Security Act, in conjunction with
administrative actions, could help over 5 million workers
each year who have an employer-sponsored pension plan and
who change jobs:
Takes Away 1-Year Wait To Save At a New Job: Millions
of workers are forced to wait 1 year before they can
enter their new employer's pension plan. The
Retirement Savings and Security Act changes law to
encourage private employers not to impose a 1-year
waiting requirement, and eliminates the waiting period
for new Federal employees to make pretax contributions
to the Thrift Savings Plan.
Green Light for Employers to Accept Rollovers: Today,
50 percent of workers in 401(k) plans are in plans
that do not accept rollovers from new employees. The
Treasury will issue new rulings to make it easier for
employers to accept rollovers into their plans.
Expanded IRAs and New Small Business 401(k) Plan Will
Increase Portability. Expanded IRAs and the new small
business 401(k) plan are both fully portable.
Ensures that Workers Can Find Benefits After They
Change Jobs and the Employer Goes Out of Existence.
Ensures workers get the benefits they earned, even if
they have long since left the job and the employer is
no longer in business, by using the Pension Benefit
Guaranty Corporation as a clearinghouse for terminated
plans.
Secures Portability for Veterans. Changes tax rules
to ensure that veterans who serve their Nation are not
penalized and can continue their pension coverage when
they return from service.
Guarantees Benefits for Workers on the Move. Reduces
the vesting period from 10 to 5 years for
multi-employer plans -- which cover union workers such
as construction workers who frequently change jobs --
to ensure they don't lose their benefits if they've
worked for 5 years.
4. Enhances Pension Protection and Security. The Retirement
Protection Act, enacted in 1994 at the President's request,
has reduced pension underfunding for the first time in a
decade, protecting the benefits of 40 million workers and
retirees in traditional pension plans. In 1995, the
Labor Department launched an initiative to protect savings
in 401(k) plans from misuse, recovering to date over
$7 million for approximately 9,000 workers. The Retirement
Savings and Security Act further enhances pension security:
Requires Prompt Action on Misuse of
Funds. Requires plan administrators and
accountants to report promptly serious
misuse of pension funds, with fines of up
to $100,000.
Protects Government Employees' Savings from Orange
County-Style Fiascos. Requires State and local
government deferred compensation plans to be held in
trust so that employees do not lose their savings if
the government declares bankruptcy, as Orange County
recently did.
Strengthens Protection of Nine Million Union Workers'
Savings. Doubles the maximum level of annual benefits
guaranteed under multi-employer plans. For 30-year
workers, the level would be increased from $5,850 --
the level set in 1980 -- to $12,870.
Enhances Pension Protection for Survivors of Civil
Service and Railroad Pension Plan Participants,
Primarily Women and Children. Provides survivors of
Civil Service Retirement System (CSRS) participants
who die before receiving benefits with the option to
receive an annuity; ensures that court orders
concerning distributions of contributions of deceased
employees and annuitants are obeyed; and provides
surviving spouses and dependents of railroad workers
with benefits fully comparable to Social Security
benefits.
5. Prevents Pension Raiding. In the 1980s, companies raided
more than $20 billion from over 2,000 pension plans
covering 2.5 million workers and retirees. Legislation in
1990 curbed pension raiding by imposing a stiff excise tax
of up to 50 percent on these pension reversions.
Oppose Proposals that Allow Corporate Pension Raids.
The Administration will continue to oppose any
legislation that encourages pension reversions, such
as the proposal in the GOP budget.
Report on Pension Reversions. To ensure that current
rules continue to prevent the abuses that were common
in the 1980s, the Retirement Savings and Security Act
requires the Secretary of Labor to report regularly on
activity in this area.
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