Annuity Legislation -
Pension Preservation & Savings Expansion
Act of 2003 |
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Representatives Rob Portman and Ben Cardin
Congress enacted the Portman/Cardin Comprehensive Retirement Security and Pension Reform Act as
part of the 2001 tax relief act. This landmark pension legislation, introduced as H.R. 10 in the 107th
Congress, increased 401(k) and IRA savings limits, instituted catch-up contributions for older workers,
enhanced pension portability through reduced vesting and removal of rollover barriers, encouraged small
business pension coverage and simplified pension regulation. The new Portman/Cardin Pension
Preservation and Savings Expansion Act builds on these important reforms by making the next generation
of improvements to our nation’s savings and pension systems. With adoption of these new proposals,
Congress will provide individuals and families with a number of important new savings tools, will further
strengthen and expand the employer-sponsored retirement system, will offer important new protections to
retirement plan participants and will assist retirees in managing and preserving retirement assets and
income. The Pension Preservation and Savings Expansion Act contains important reforms in the
following areas:
Savings Assistance
- Making Today’s Retirement Savings Opportunities Permanent. The legislation will make all of
the retirement savings and pension reforms contained in the 2001 tax relief act (which are currently
scheduled to sunset at the end of 2010) permanent. As part of this effort, the bill will make permanent
the 2001 act’s tax credit for low and moderate-income savers while at the same time expanding the
amount of the credit and making more middle-income Americans eligible to receive it.
- Accelerating Savings Limits and Increasing Retirement Plan Participation. The legislation will
help Americans step up their retirement savings by accelerating the increases in 401(k) and IRA
savings limits contained in the 2001 tax relief act and allowing workers to roll $500 of unused assets
in flexible spending accounts into their retirement plans.
- Expanding IRAs. In addition to accelerating the IRA limit to an immediate $5,000, the legislation
will speed scheduled increases in eligibility for traditional deductible IRAs and will eliminate the
marriage penalties in today’s IRA and Roth IRA rules. It will also allow disabled individuals to have
their own IRAs and will allow defrauded IRA investors to put recovered funds back into their IRAs
without tax penalty.
- Enhancing Portability, Fairness and Women’s Retirement Security. The legislation will build on
the significant portability improvements contained in the 2001 tax act by allowing rollovers directly to
a spouse’s retirement plan, facilitating rollovers by non-spouse beneficiaries, aiding public-sector
workers in purchasing service credits to build more reasonable pension benefits, ensuring employees’
ability to roll over after-tax contributions and permitting direct rollovers from workplace retirement
plans to Roth IRAs. The bill will also reduce the required vesting schedule for non-matching
contributions made by employers into defined contribution plans (such as 401(k)s) so that these
dollars more quickly become the property of the employee. In addition, the legislation will ensure that
modest amounts of retirement savings do not disqualify the aged, blind and disabled from eligibility
for supplemental security income (SSI). The bill will also enhance women’s retirement security by
clarifying the ability at divorce to seek a share of a spouse’s pension benefits earned during the period
of the marriage.
Pension Expansion
- Expanding Small Business Pension Coverage. The legislation will make a number of
improvements to the existing SIMPLE and SEP retirement plans (including creation of a new reversematch
SEP) to make these simplified pension plan designs even more attractive to small business.
The bill will also remove a payroll tax penalty that the self-employed face when making retirement
plan contributions and will streamline a number of rules that have impeded small business pension
creation.
- Revitalizing Defined Benefit Plans. The legislation will institute a new interest rate benchmark for
pension calculations to replace the current 30-year Treasury bond rate, which has fallen dramatically
as a result of the discontinuation of the 30-year bond. This new benchmark, based on long-term
conservative corporate bond rates, will ensure that funding, premium and lump sum calculations are
based on a rational and realistic interest rate. The bill will provide very substantial transition
assistance to older workers so that expectations regarding lump sum amounts are not undercut. The
legislation will also provide targeted funding relief for multi-employer pension plans managed jointly
by union and employer trustees. In addition, the legislation will reform a variety of rules applicable to
defined benefit plans that have complicated plan administration and discouraged employers from
offering the guaranteed benefits these plans provide.
- Regulatory Simplification. The bill will continue the regulatory simplification efforts begun in past
Portman/Cardin pension bills by reforming a variety of administrative rules that have unnecessarily
increased the cost and complexity of retirement plan sponsorship and administration.
Preservation of Retirement Income
- Preserving Retirement Assets. The legislation contains a cluster of reforms designed to help
Americans preserve their savings so that they last throughout retirement. The bill will reform the
minimum required distribution rules that force individuals to begin taking their money at age 70½ by
raising the starting age to 75 (which will reflect increases in life expectancy since the rule was enacted
in 1962). The bill will also provide incentives for individuals to take their retirement benefits in an
annuitized form guaranteed to last a lifetime, will fight leakage from the retirement system by
facilitating default rollover options for departing employees, and will significantly expand the existing
program to match employees with their lost retirement plan benefits.
- Financing Retiree Health Expenses. The legislation will contain two important new tax incentives
to help employers and employees finance the ever-increasing costs of retiree health coverage.
Employers with defined contribution plans such as 401(k)s will be given a new mechanism to fund a
portion of retiree medical expenses on a pre-tax basis and employees will for the first time be allowed
to use pre-tax retirement plan payments to pay for retiree health costs.
- Reforming Company Stock and Executive Compensation Practices. The legislation will contain
the Portman/Cardin Employee Retirement Savings Bill of Rights (H.R. 3669 of the 107th Congress).
This measure, which was approved by the Ways & Means Committee in April 2002 and reforms
retirement plan rules in the wake of the Enron bankruptcy, will provide employees with new rights to
diversify company stock contributed to their 401(k) accounts, will require new investment education
notices and will allow employees to save for retirement planning expenses on a pre-tax basis. In
addition, the bill will impose an excise tax on excessive corporate payments to senior executives in the
run up to bankruptcy in order to prevent insiders from draining assets from a company as it declines.
Features will vary by company and product. Please refer to
Glossary for definitions
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