Clinton Proposes Simpler Rules For Private Pensions

Responding to economic anxiety in this election year, President Clinton unveiled a set of proposals Thursday to make private pensions for workers more available and secure.

One of his proposals would encourage small businesses to offer employees a new, simplified 401(k) pension plan. Another would make it easier for employees to transfer their pension savings from job to job; this will not require congressional approval and will be done by executive authority.

A third would expand incentives for workers to open Individual Retirement Accounts. Still others would stiffen regulatory safeguards against misuse of pension funds.

The political tailoring of Clinton’s package was obvious from the way he presented it in the White House Rose Garden on a brilliant spring morning. First he defended his economic record, then acknowledged that despite his achievements, many people still feel “uncertain about their future.

“That is what we’re here to do today, to try to respond to that challenge….With the Retirement Savings and Security Act,” Clinton said, “we can help to make retirement something Americans can look forward to, not dread.”

But the outlook for Clinton’s proposals is clouded by politics. The Republican Congress has ignored his ideas for expanding IRAs since Clinton first sounded them in late 1994.

Similarly, the GOP Congress passed its own pension-simplification proposals last fall along with its balanced-budget plan, and Clinton vetoed it.

“The fact is that these ‘new’ reforms are nothing more than repackaged Republican ideas,” said Kansas Sen. Bob Dole, the presumptive GOP presidential nominee. “If the president is really serious about pension relief, he would have signed the Balanced Budget Act of 1995.”

Despite such partisan friction, the president asked Congress to “join with us” in passing his proposals before November’s elections. “I do not believe there is a partisan issue here. This is something we can and should do for America, and we ought to do it now.”

The U.S. Chamber of Commerce’s reaction suggests the politics of pension reform may be tricky.

“It’s encouraging that the president is focusing on the issue of pensions, but in a lot of ways he doesn’t go far enough. These really are small, incremental provisions that don’t do a whole lot,” said Peter Kelly, an employee-benefits lawyer with the Chicago law firm of Murphy, Smith & Polk who is chairman of the Chamber’s review panel on these matters.

The centerpiece among Clinton’s proposals would create a new 401(k) pension plan for small businesses that employ fewer than 100 workers. Only 1 in 4 small-business employees now has access to a private pension. Clinton’s proposal would require only a one-page form, simplifying the employer’s administration as an incentive to offer a pension plan.

Under it, workers could contribute up to $5,000 tax-free annually to the plan through regular paycheck deductions. Employers would contribute 3 percent of the employee’s pay, or 1 percent plus a “match” amount up to 5 percent, depending upon the employee’s donation.

The administration estimates this option could entice small-business owners to expand pension coverage to as many as 10 million workers. The U.S. Chamber’s Kelly noted, however, that many businessmen still may resist opening such plans because “employers still would have to spend money to do this.”

To make pensions and 401(k)s more easily portable from job to job, Treasury Secretary Robert Rubin said the Internal Revenue Service will issue rules making it easier for companies to avoid waiting one year before admitting new employees to their pension or 401(k) plans.

Current pension rules encourage delays by making employers meet complex tests intended to assure that pension benefits are distributed fairly to all pay grades. Both portability and fairness can be attained under the proposed reform rules, which the IRS can issue without new authority from Congress, Rubin said.

The package also included proposals Clinton first made in 1994 to double the family-income limits permitted for tax-free contributions to IRAs, to $100,000 for married couples and to $70,000 for single taxpayers. It also repeats his proposals to permit penalty-free withdrawals from IRAs for expenses of education and training, first-home purchases, major medical expenses, and long-term unemployment.