THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release May 23, 1996
"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are available to families who have pension coverage only if household income is under $50,000, and generally can be withdrawn penalty-free only after age 59?.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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