On July 28, the House approved, 279-131, H.R. 4, the Pension Protection Act of 2006. The bill includes the provisions agreed to in an earlier bill, H.R. 2830; a House-Senate conference on the legislation remains deadlocked.
The legislation would require that employers who terminate their pension plan pay the Pension Benefit Guarantee Corporation (PBGC) $1,250 for each program participant. The bill also changes the way in which employers and plan sponsors calculate the amount of liability in their benefit plans; it would require employers to meet a 100 percent funding target and allow seven years to make up any current funding shortfall.
The bill would make permanent several individual retirement accounts (IRAs) and pension provisions enacted in 2001 and scheduled to expire in 2010, including the Coverdell Educational Savings Account, which allows adults within certain income limits to save money for a child’s college education. It would increase the annual contribution limit for IRAs and the “catch-up” contributions for those aged 50 and older. It also would permanently extend 529 qualified tuition savings plans.
Current law prohibits financial firms that administer 401(k) retirement plans from giving advice to participants regarding their own financial products. The bill would allow firms to give advice so long as any investment is made at the sole discretion of the plan participant, the advisor’s fees are reasonable, and any financial projections are based on an independently certified and audited computer model. The legislation would encourage employers to automatically enroll their employees in their defined-contribution retirement plan, and to allow employees to opt-out if they so choose. It also would make permanent, and index to inflation, the “saver’s credit.” The saver’s credit is a non-refundable credit available to low-income individuals who make contributions to a 401(k), 403(b), IRA and/or other retirement plan. Individuals who qualify receive a federal match in the form of a tax credit for the first $2,000 of annual contributions. The legislation also would allow persons with disabilities to contribute to an IRA even if they do not have earned income.
The legislation also would exclude up to $100,000 of distributions from a traditional individual retirement account (IRA) or a Roth IRA from a person’s income if the distribution was made to a tax-exempt organization.
Rep. Nancy Johnson (R-CT) said, “I rise in strong support of this Pension Protection Act of 2006. Not only does it ensure that employers and unions will fund their plans, but it enables individuals to make a much greater effort toward providing for their retirement security as well. Nothing is more important to Americans than the gut-wrenching issue of being secure in their old age. It is important to seniors, it is important to their families, it is important to young people to know that they can plan for the future. And it is a pity that only 50 percent of America’s workers participate in pension plans. This bill makes a simple change that will result in 85 to 90 percent of working Americans who work for companies with pension plans participating in those plans, as opposed to 50 percent. That is big. That is important. It is a simple mechanism, but it will help many, many more young people get into those pension plans, take advantage of employer contributions, and prepare for their retirement. It also does something else we don’t know much about, we don’t pay attention to it, we don’t think about it: it makes permanent the saver’s credit. If you don’t make much money, putting money aside for retirement is really hard. We have a little plan by which the government gives you a dollar for every dollar you save for low- and middle-income earners. This makes that permanent, and that will enable us to grow that program appropriately. It also indexes it to inflation so those people can never be robbed of the power of this help in saving for their retirement.”
Rep. Lynn Woolsey (D-CA) asked, “Mr. Speaker, if this bill is so great, why are executives not being treated the same way as the rank-and-file workers? It is hard to believe that in the face of all of the corporate scandals that we have been experiencing over the last few years, that this legislation still allows for executives to receive a golden parachute. Unbelievably, executives who have run their companies into the ground can continue to receive large lump sum payments from their underfunded pension plans at the same time that the rank-and-file employees’ benefits have been frozen. You heard me right. If a company’s plan is underfunded by 80 percent, rank-and-file workers cannot receive new benefits or lump sum payments. Meanwhile, the restrictions for executives do not start until the plan is underfunded by 60 percent. That difference adds up to billions and billions of dollars. Whatever happened to the captain going down with the ship? The way this bill reads the only boat the Republican majority is familiar with is the Titanic, because they are giving lifeboats to the first class passengers only. Mr. Speaker, we live in a country that values equality. Why oh why in the world would we allow this pension bill to pass the House treating executive pension benefits differently from their workers? What happened to what is good for the goose is good for the gander? If workers’ pensions are underfunded, then so are executives. It is time to end the golden parachute or, as the gander goes, the golden egg.”
Prior to the vote on final passage, Rep. George Miller (D-CA) offered a motion to recommit the bill that was defeated, 189-222.
