- The Washington Times - Tuesday, September 26, 2000

Pension legislation approved by the House and anticipated on the Senate floor in coming weeks, although characterized as liberalization by its sponsors, could have serious, perhaps unintended, adverse consequences that would reduce pension security for millions of working Americans.
Bipartisan supporters claim they are addressing a problem soon to be made more urgent by the aging of the Baby Boomers: Only about half of American workers have any sort of pension or retirement plan beyond Social Security.
But this legislation is unlikely to help those who most need retirement plans and would hurt many. Although the Senate version of the proposed legislation includes some potentially helpful provisions, the vast majority of the benefits go almost entirely to upper-income taxpayers, a relatively small group that is already well prepared for retirement. The sponsors reason that offering bigger tax breaks to business owners and executives will motivate them to sponsor more and better plans to aid their lower-paid employees. But the legislation's incentives simply don't work that way.
At the heart of the proposal are increased limits on tax-advantaged retirement plans. The amount of compensation that can be counted for pension purposes would rise by $30,000 to $200,000, and the maximum annual pension payment in a traditional plan would rise $25,000 to $160,000. Think of the sort of wage it takes to generate an annual pension of $160,000.
I looked at random at three retirement plans administered by the law firm where I work. In each case, virtually the only participants pushing against today's limits are those earning more than $100,000 in a 60-person plan, four doctors; in an 80-person manufacturing company, three owners and a few others; in the 20-person plan of a distribution company, only the owner.
The proposal also increases the amount an employee can contribute to a 401(k) plan from $10,500 annually a limit that fewer than 5 percent of 401(k) participants now reach to $15,000.
Under the House version of the bill, the top 5 percent of the population gets 42 percent of the benefits in this bill and the top 20 percent would receive 77 percent of the benefits. What about the others?
Few employees employed by small businesses have retirement plans. The biggest barriers keeping their employers from establishing plans, according to surveys, are low profits that put cash in short supply and the need to pay competitive wages that leads them to offer what extra resources they have in paychecks rather than benefits. The legislation offers nothing to change this.
Instead, the new provisions would substantially increase the limits on contributions to individual retirement accounts, an action the Treasury Department warns would discourage employers from creating company plans because the owners could provide for themselves by relying entirely on more generous IRAs.
When small business owners do set up retirement plans, they must cover the lower-paid employees along with themselves and their managers. The proposed legislation loosens nondiscrimination rules that now prevent plans from concentrating most benefits in the hands of those few at the top of the pay ladder, hardly the incentive congressional backers say they are trying to provide. It also weakens so-called top heavy rules that require some plans to provide minimum benefits.
Many sponsors of small pension plans like those with whom I work contribute fixed amounts to their plans. If business owners can allocate more of this amount for their own personal accounts, as the legislation would allow, the temptation will be to spend less on others.
The most powerful effect of this pension legislation would be to let well-off Americans divert more of their income into tax-deferred accounts.
If Congress believes this backdoor tax cut is appropriate, it should acknowledge what is happening and explain why. But our legislators should not attempt to portray this change as enhanced retirement security for American workers.

Dianne Bennett is a Buffalo lawyer who has been practicing employee benefit law for more than 25 years.

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