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Office of the Press Secretary

For Immediate Release June 4, 1998

                              June 4, 1998

|----------------------------------------------------------------------| | | | American workers need three things which constitute FDR's famed | | three-legged stool of retirement security: Social Security coverage, |

| an employer-provided pension and personal retirement savings.        |
| Today, Social Security is the sole source of income for 18% of       |
| senior citizens, and for two-thirds of the elderly, it is the        |

| primary source of income. These figures demonstrate that more must | | be done to promote employer-provided pension coverage and increase |

| personal retirement savings.  This is the purpose of the SAVER       |
| Summit.                                                              |
|                                                                      |
|   Today, President Clinton is announcing that under current law,     |
| employers can structure their 401(k) plans so that workers are in    |
| unless they opt out.  Under standard practice, workers are out       |
| unless they opt to participate in the 401(k) plan.                   |
|                                                                      |


PRESIDENT CLINTON'S RECORD OF EXPANDING AND PROTECTING PENSIONS. For over five years, President Clinton has worked closely with the House and Senate, Democrats and Republicans, to expand pension coverage, make pensions more secure, and simplify pension plan administration.

The Retirement Protection Act of 1994, proposed by the Administration and passed by Congress, protects the benefits of more than 40 million American workers and retirees. The Small Business Job Protection Act of 1996 included measures that expanded pension coverage by creating a simplified defined contribution plan for small businesses. This is proving to be a big hit. The Act also promoted portability and streamlined pension plan administration.

THE NEED FOR ACTION. Despite these achievements, there is more to be done. And the SAVER Summit will help to turn our nation's attention to the critical issue of private retirement savings, focusing on the best methods to encourage workers to plan and save for retirement.

Thanks to President Clinton's efforts to eliminate the Federal budget deficit, the net national savings rate has doubled -- from 3.1% of gross domestic product in 1992, to 6.4% in 1997. CBO and OMB both project that this year, the Federal budget will be in surplus for the first time in 30 years. While net national savings are up, however, the personal savings rate is far too low.

In addition to lacking adequate personal savings, many workers also do not have pension coverage through their employers:

Half of all American workers, more than 50 million, are not covered by a pension plan.

The problem of low pension coverage is especially acute for young and/or low and moderate income workers.

Only 21% of workers earning under $15,000 per year have pension coverage, as opposed to 81% of workers earning $50,000 or more per year. [private sector workers only]

Just 15 percent of workers under age 25 are covered by a pension plan, compared to 58 percent of workers age 35 to 49. [private sector workers only]

Only 24% of full-time workers in firms with fewer than 100 employees have pension coverage, as opposed to 68% of full-time workers in firms with 100 or more employees.

A NEW EFFORT TO INCREASE PENSION COVERAGE. The Clinton Administration is taking another step to promote pension coverage, especially for workers of modest means. The President is announcing that under current law, employers can structure their 401(k) plans so that workers are in unless they opt out. Under standard practice, workers are out unless they opt in to the 401(k) plan.

A number of employers have reportedly been deterred from establishing such automatic enrollment 401(k) plans due to concern about whether this is allowable under current law; this step responds to these concerns.

Automatic election works as follows:

A newly eligible employee is automatically enrolled in the 401(k) plan, with contributions through payroll deduction set at a standard percentage of payroll.

The worker must be given notice of the automatic enrollment and have the opportunity to opt out (or change the contribution percentage) before the first deduction is made.

Employers would not be required to structure their 401(k) plans this way; the ruling only clarifies that firms have this option.

The information available suggests that for firms with automatic enrollment, participation rates in 401(k) plans are about 90 percent, as compared to the overall 401(k) participation rate of 67 percent.

For some workers, the need to complete a 401(k) election form -- opting in -- may be a deterrent to participation. Automatic enrollment gives employers an opportunity to encourage participation by eliminating this extra step.

BUILDS ON PRESIDENT'S PLAN TO EXPAND PENSION COVERAGE. This step builds on initiatives that President Clinton proposed in his budget, all of which respond to the problem of inadequate pension coverage and savings rates:

A tax credit for small businesses that adopt pension plans and a simplified defined benefit plan for small firms. Both of these proposals should boost pension coverage among small businesses, where coverage rates are lowest.

The Administration's pension package would also encourage those employers who do not offer a pension plan to give workers the option of contributing to individual retirement accounts (IRAs) through payroll deduction. This should be particularly helpful for low-income workers, who are disproportionately employed by firms without pension plans.

Shortening the vesting period for employer 401(k) and other matching contributions from five to three years. This is particularly important for low and moderate income workers and women, whose average job tenure is less than men's.