CARDIN INTRODUCES NEW RETIREMENT
"Follows Portman-Cardin Tradition"
WASHINGTON -- Americans would be able to save more for retirement and have
more control over their savings under new pension legislation introduced today
by Rep. Benjamin L. Cardin (D-MD). The Cardin bill "follows the Portman-Cardin
tradition by giving Americans new savings opportunities, strengthening and
expanding the employer-sponsored retirement system, and offering important new
protections to workers participating in retirement savings plans."
Rep. Cardin stressed: "I want to continue the progress we've made since the
2001 pension reform bill. This new bill provides Americans with even greater
savings opportunities. It's a win-win for everyone," said Rep. Cardin, a
member of the Ways & Means Committee.
In 2001, Reps. Cardin and Portman had enacted into law their
Comprehensive Retirement Security and Pension Reform Act. The measure
made it easier for Americans to save for retirement and removed many of the
barriers making it difficult for small businesses to create and administer
private pension plans.
The Pension Preservation and Savings Expansion Act of 2005,
- Improve the "savers" tax
credits for low and moderate-income Americans by making the credit
refundable, permanent, and expanded. The credit, used in both 2002 and 2003
by 5.3 million Americans, would be available to Americans regardless of
income tax liability;
- Make pension
improvements made in 2001 permanent, including the availability of catch-up
contributions for individuals over 50, increased contribution limits, and
increased portability of retirement savings;
- Enable tax refunds to go
directly to retirement accounts. It would allow Americans to contribute some
or all of their federal income tax refund directly into their Individual
Retirement Account (IRA) through electronic means. This will enable
individuals and families to boost their retirement savings at a time when
they can often afford to save;
- Provide incentives for
employers to include automatic enrollment and automatic increase designs in
their retirement plans. When an employer-sponsored retirement plan includes
automatic enrollment, employees will automatically save unless they opt out.
Some plans also have an "auto increase" feature that automatically increases
employee contribution levels each year (unless workers opt out). Automatic
enrollment has been repeatedly shown to dramatically increase retirement
plan participation and savings, particularly among low and moderate-income
- Give workers greater
protections over their retirement plan. The bill also provides workers with
new protections for their 401(k)-type plans and gives them better access to
retirement planning services. The bill would empower workers with new rights
to diversify company stock, and it provides new tax incentives to employees
to help them pay for retirement advice and counseling. Under the
legislation, companies also would be required to provide workers with an
explanation of accepted investment principles (such as diversification) in
their 401(k) plan;
- Exempt individuals with
less than $100,000 in savings from requirements that they must begin to take
their Minimum Distribution at age 70 1/2. The excise tax for those who fail
to take their proper distributions would also be reduced from 50% to 25% --
enough to deter gaming while avoiding draconian penalties on seniors who
make innocent mistakes.
* * * * *
Summary of the Pension Preservation and
Savings Expansion Act
April 28, 2005
Helping Families Build Retirement Savings
- Making the Savers'
Credit Refundable -- Increasing the availability of the tax credit
included in the 2001 pension bill for low and moderate-income savers who
contribute to a workplace retirement plan or IRA, by making the credit
available to Americans regardless of income tax liability.
- Enabling Tax
Refunds to Go Directly to Retirement Accounts -- Allowing Americans
to contribute some or all of their federal income tax refund directly into
their Individual Retirement Account (IRA) through electronic means. This
will enable individuals and families to boost their retirement savings at a
time when they can often afford to save.
- Faster Vesting
-- Extending the shorter vesting periods for 401(k) matching contributions
contained in the 2001 tax act to other employer contributions (such as
profit-sharing contributions). Reducing these vesting schedules from five
years to three years will simplify the rules and assist today's mobile
workers in building their retirement nest eggs.
- Enhancing Pension
Portability -- Building on the significant portability improvements
in the 2001 tax act by making it even easier for employees to keep their
savings in the retirement system when they change jobs. Ensuring that
workers moving between tax-exempt and for-profit employers can roll over
their after-tax contributions and permitting direct rollovers from workplace
retirement plans to Roth IRAs (which today must be done in a cumbersome
two-step process). Assisting non-spouse beneficiaries in workplace
retirement plans by allowing them to roll over their inherited benefits into
an IRA rather than being forced to take a taxable lump sum payment.
- Making Today's
Retirement Savings Opportunities Permanent -- Making permanent all
of the retirement savings and pension reforms contained in the 2001 tax act
-- such as catch-up contributions, small business pension incentives, and
expanded IRAs and 401(k)s. These important provisions are currently
scheduled to sunset at the end of 2010, frustrating the long-term planning
that is critical for retirement savings. Making permanent the savers' credit
(which is currently scheduled to sunset at the end of 2006).
Expanding Workplace Plans and Participation
Automatic Enrollment and Automatic Increase Designs -- When an
employer-sponsored retirement plan includes automatic enrollment, employees
will automatically save unless they opt out. Some plans also have an "auto
increase" feature that automatically increases employee contribution levels
each year (unless workers opt out). Automatic enrollment has been repeatedly
shown to increase retirement plan participation and savings levels
dramatically, particularly among low and moderate-income workers. There are
a number of provisions that would effectively encourage such strategies.
Employers that adopt auto enrollment, auto increase and an accelerated
vesting schedule -- and that commit to a certain robust level of
contributions for all workers -- would be protected by a safe harbor.
Clarifying that the adoption of automatic enrollment is not prevented by
state wage withholding laws, and directing the Department of Labor to
provide guidance on appropriate default investments to use within auto
enrollment arrangements (and for all un-directed savings).
- Expanding Small
Business Pension Coverage -- Creating improvements to existing
SIMPLE and SEP retirement plans to make these simplified pension designs
even more attractive to small business. Small employers will be permitted to
make additional contributions to SIMPLE plans on behalf of all workers. The
bill will also conform the rules for matching contributions made to SIMPLE
IRAs and SIMPLE 401(k)s, providing greater flexibility to employers to
adjust their contributions based on business conditions.
- Enhancing the
Retirement Security of State and Local Government Employees and Military
Personnel -- Strengthening the retirement plans of state and local
government employees. Facilitating helpful new pension designs for public
safety workers and improving the purchase of service credit rules that
enable many teachers and state and local employees to buy into a complete
pension benefit in the jurisdiction in which they finish their careers.
Clarifying that National Guard members and military reservists called up on
active duty may continue contributing to their workplace retirement plans if
their employers pay them their salary differential during their active duty
Uniformity and Regulatory Simplification
- Uniform Rules
-- Continuing the simplification efforts begun in past pension bills by
making the tax rules more uniform across the different defined contribution
vehicles (401(k), 403(b) and 457). It will also reform a variety of
regulations that have unnecessarily increased the cost and complexity of
retirement plan sponsorship and modify the IRS retirement plan sanctions
program to establish more reasonable penalties and encourage self-correction
- Repealing Roth
401(k)s -- These plans, which have not yet come into effect, will
add one more plan to a swamped market and lose significant amounts of
revenue over time.
Preserving Retirement Income
- Incentives for
Lifetime Payments -- Allowing individuals to exclude from taxation
up to $2,000 in annual income drawn from qualified (retirement plan or IRA)
or nonqualified annuities that last a lifetime. Encouraging individuals to
consider so-called longevity insurance -- a form of annuity that begins
payment once you reach your life expectancy -- by correcting a glitch in the
minimum required distribution rules. Such longevity insurance guarantees
steady income in the final years of retirement and can be purchased with a
relatively modest portion of one's retirement savings.
- Reforming Required
Distribution Rules -- Reforming the minimum required distribution
rules, which force individuals to begin taking their retirement money at age
70 1/2, by indexing this age to future increases in life expectancy. In
addition, individuals with less than $100,000 in their combined IRA and
403(b) accounts would be exempt from these rules altogether, freeing many
modest-income seniors from a complex set of requirements aimed at those with
significant assets. Finally, the excise tax for those who fail to take their
proper distributions would be reduced from 50% to 25% -- enough to deter
gaming while avoiding draconian penalties on seniors who make innocent
- Ensuring that
Workers Receive Earned Benefits -- Improving upon the automatic
rollover provision enacted in the 2001 tax act by providing that retirement
plan payments of under $5,000 may be sent to the Pension Benefit Guaranty
Corporation (PBGC) when employees have not made an affirmative election
regarding where to send their rollovers. Building on a successful PBGC
program to match workers with benefits they have earned under terminating
defined benefit plans by establishing a similar program for terminating
defined contribution and multiemployer plans.
Post-Enron Reforms -- Including providing for pre-tax financial
planning, creating a large tax on golden parachute payments when a company
goes into bankruptcy, and allowing for greater diversification of savings.