THE WHITE HOUSE
Office of the Press Secretary
THE CLINTON-GORE ADMINISTRATION'S PENSION LEGISLATION: HELPING MORE AMERICANS TO A SECURE AND COMFORTABLE RETIREMENT February 11, 1999
"We know the most secure retirement belongs to retirees who can count on a pension in addition to Social Security and personal savings. Today, I am proud to announce our Administration's five-part plan to address these challenges, and expand and strengthen our nation's private pension system for a new century."
--Vice President Gore
THE CLINTON-GORE LEGISLATION WOULD STRENGTHEN AND EXPAND THE PRIVATE PENSION SYSTEM BY:
Millions of American retirees enjoy a comfortable retirement because they can count on income from three sources: social security, individual savings and employer-provided pensions. The Clinton-Gore FY 2000 budget would continue to enhance Americans' retirement security by increasing access to, and ensuring the security of, all three sources of retirement income.
Social Security: Transfer 62% of the projected budget surplus over 15 years, investing a portion of the transferred surplus in the private sector -- keeping the system solvent until 2055 -- and working with Congress to make other reforms to save the system until at least 2075. Individual Savings: Tax credits to help working families save for retirement by allocating 12% of the projected surplus for new Universal Savings Accounts (USAs).
Private Employer Pension Plans: Expand coverage by making it easier for businesses to create new plans, increase portability of private pensions, improve retirement security for women, expand workers' "right-to-know" about their pensions, increase the security of private pension plans, and simplify private pension plan administration. Retirees that have a private pension, in addition to social security and personal savings, enjoy the most secure retirement. For many retirees, employer-provided pensions make the difference between simply getting by and fully enjoying their "golden years." While private pension coverage continues to grow, still too few benefit today.
Half of all American workers -- more than 50 million people -- have no pension plan at all. The problem is most acute for small business workers. Although businesses with less than 100 workers provide 40 million jobs, only 20% participate in an employer pension.
Women have less pension coverage than men. Only 30 percent of all women aged 65 or older who retired from a private sector job were receiving a pension in 1994 (either from their prior employer or as a survivor benefit) compared to 48 percent of men. Those that women receive are smaller than those received by men. (Among new private sector pensions annuity recipients in 1993-94, the median annual benefit for women was $4,800 or only half of the median benefit of $9,600 received by men.) And, even among those women who work, fewer women than men have employer pensions, because many women work in part-time jobs or move in and out of the workforce.
An increasingly mobile workforce makes accumulating and managing retirement benefits more difficult. Between the ages of 18 and 32 alone, the average person holds 9 different jobs. The amount of time older workers have spent in their current job declined from 12 to 10 years between 1987 and 1998. Workers are frustrated by keeping track of their various retirement accounts and are tempted to cash out their retirement benefits and spend these all important savings on current consumption. Two-thirds of workers receiving a lump sum distribution from a pension plan do not roll over the distribution into retirement savings.
ELEMENTS OF THE CLINTON-GORE PLAN: EXPANDING COVERAGE
Small Business Pension Program Start-up Tax Credit. The Administration's plan provides a three-year tax credit to encourage small businesses to set up retirement programs. For the first year of the plan, small businesses would be entitled to a credit equal to 50 percent of up to $2,000 in administrative and retirement education expenses associated with a defined benefit plan (including the new SMART plan described below), 401(k), SIMPLE or other retirement plan or payroll deduction IRA arrangement. For each of the second and third years, the credit would be 50 percent of up to $1,000 in such costs.
The SMART Plan -- A Simplified Defined Benefit Plan. In 1996, the Administration and Congress created the SIMPLE plan -- an easy-to-administer defined contribution plan for small businesses. The SMART plan provides, for the first time, a simplified defined benefit-type plan for small business. The Administration's proposal builds on the bipartisan "SAFE plan". The SMART (Secure Money Annuity or Retirement Trust) combines many of the best features of defined benefit and defined contribution plans.
Another easy-to-administer pension option for small businesses. SMART provides simple rules and reporting that make it an attractive option for most small businesses.
Broad coverage. Employers choosing a SMART plan would make contributions for all eligible workers (over 21 with at least $5,000 in W-2 earnings with the employer in that year and in two preceding consecutive years).
Guaranteed benefit. Participants would be guaranteed a minimum monthly benefit upon retirement, but could receive a larger benefit if the return on plan investments exceeds specified conservative assumptions (i.e., a 5 percent rate of return). The SMART benefit would generally be guaranteed by the Pension Benefit Guaranty Corporation, at a reduced premium.
Reduced PBGC Premium for New Business Plans. The Pension Benefit Guaranty Corporation administers an insurance program that guarantees workers that they will get most if not all of their benefits in the event that the plan has inadequate resources to meet its obligations. PBGC charges each defined benefit plan an annual premium of $19 per participant, plus a variable rate premium of $9 per $1,000 of underfunding. Small Businesses: To encourage formation of new defined benefit plans among small employers, the Administration's bill would lower the flat-rate premium to $5 per participant and eliminate the variable rate premium for the first five years of a new small business plan. Middle-size and Larger Businesses: To encourage formation of new defined benefit plans among middle-size and larger employers, the Administration bill would leave the flat rate premium unchanged but would phase in the variable rate premium 20% each year for the first five years of a plan.
Expanded Payroll Deductions for Retirement Savings through IRAS. To make it easier for workers to make contributions to Individual Retirement Accounts (IRAS), employers would be encouraged to offer payroll deduction. Contributions of up to $2,000 to an IRA through payroll deduction generally would be excluded from an employee's income, and, accordingly, would not be reported as income on the employee's Form W-2. Some employees would be able to use simpler tax forms. The greater convenience of saving through payroll deduction encourages low and moderate-wage earners to save more for retirement.
ELEMENTS OF THE CLINTON-GORE PLAN: INCREASING PORTABILITY
Faster Vesting of Employer Matching Contributions. Currently, employer matching contributions to, for example, a 401(k) plan, only need vest after 5 years (or 7 years if vesting is phased in). If an employee switches jobs after 4 years, she may lose all of those employer matching contributions. The vesting requirement has a disproportionate adverse impact on female employees who tend to have shorter job tenure. Under the Administration's proposal, all employees must be fully vested in the employer's matching contributions after 3 years of service (or 6 years if vesting is phased in).
Make it Easier to Consolidate Retirement Savings by Permitting Rollovers Between Various Types of Plans. (1) Permit eligible rollover distributions from a qualified retirement plan to be rolled over a Section 403(b) tax-sheltered annuity or visa versa; (2) allow rollovers from non qualified deferred compensation plans of state or local government (Section 457 plans) to be rolled over into an IRA; (3) permit rollovers of IRAs into workplace retirement plans; (4) allow rollovers of after-tax contributions to new employer's defined contribution plan or an IRA if separate tracking of after-tax contribution is provided; (5) allow the Thrift Savings Plan (a retirement savings plan for federal government employees) to accept tax-free rollovers from private plans; and (6) Allow employees of state and local governments to use funds in their retirement plans to purchase service credits in new plans without a taxable distribution, allowing teachers especially, who often move between state and local school districts in the course of their careers, to more easily earn a pension reflecting a full career of employment in the state in which they end their career.
Allow Federal Employees to Immediately Participate in the TSP and Receive Agency Matching Contributions. Under current law, employees can sign-up to contribute to TSP only during two semi-annual election periods and newly hired employees can only participate in the second election period after being hired. As a result, the average waiting time for participation is 9 months. Under this plan, employee contributions, and agency automatic and matching contributions could begin immediately upon employment. The Federal government should be a role model for employers making it as easy as possible for our employees to save for their retirement.
Help Reunite Workers with Benefits to Which They Are Entitled -- Expand the PBGC Missing Participant Program. The Missing Participant Program helps to find workers with pension benefits under single-employer defined benefit retirement plans that have been terminated. The Administration's bill would expand the program to include multiemployer plans, non-PBGC covered defined benefit plans, and defined contribution plans.
ELEMENTS OF THE CLINTON-GORE PLAN: RETIREMENT SECURITY FOR WOMEN
Count FMLA Leave Toward Retirement Eligibility and Vesting. The Administration's legislation would allow workers, who take time off under the Family and Medical Leave Act (FMLA), to count that time toward retirement plan eligibility vesting requirements. (Under FMLA, eligible workers are entitled to up to 12 weeks of unpaid leave to care for a new child, a sick family member, or for their own serious health problems.) In some cases, counting time taken under FMLA can make the difference between receiving or not receiving credit toward minimum pension vesting requirements.
Require Pension Plans to Offer a 75% Survivor Annuity Option. Currently, workers in defined benefit plans must be given the option of a "joint and survivor annuity" which typically pays a lower pension benefit during the life of the covered employee but continues paying 50% of the amount after the death to a surviving spouse. Unfortunately, a surviving spouse may need more than 50% of the prior benefit to live. Many couples may prefer an option that pays a somewhat smaller benefit to the couple while both are alive, but provides a larger benefit -- 75% of the annuity amount -- to the surviving spouse. Nothing would require the couple to take this option, but it would provide another choice.
ELEMENTS OF THE CLINTON-GORE PLAN: PENSION RIGHT-TO-KNOW
Expand Pension Right-to-know Provisions for Workers and Spouses. The President's pension right-to-know initiative includes the following rights: (1) Spouses would be provided a description of the benefit choices under the worker's plan so that they can help make informed choices. (Certain plans require that the pension be provided in the form of the joint and survivor annuity benefit unless the spouse waives that right. However, spouses do not always understand what rights it is that they are waiving.) (2) participants in defined benefit pension plans would automatically be provided a statement every three years of the benefit payable at retirement if the individual left that employer as of the date of the statement; and (3) participants in defined contribution plans would automatically be provided a statement at least annually. Knowledge of the benefit is critical for retirement planning.
ELEMENTS OF THE CLINTON-GORE PLAN: SIMPLIFICATION AND SECURITY
Simplifying Pensions and Further Increasing Retirement Security and Savings. The package also includes the following: (1) the pension audit bill, which would subject more pension assets to audit; (2) changes to multiemployer (collectively bargained) plan rules that would increase the level of multiemployer benefits guaranteed by the PBGC, increase the permitted funding level, and simplify the maximum benefit limitations; (3) rule changes that would ensure greater pension benefits for low and moderate income workers in simplified 401(k) plans; and (4) further simplification of the definition of highly compensated employees.
TOTAL COST FOR ENTIRE PACKAGE: $1.027 billion over five years