FOR IMMEDIATE RELEASE, Contact: (202) 225-7601
April 28, 1998
No. OV-16
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on Oversight of the Committee on Ways and Means, today announced that the Subcommittee will hold a second hearing on oversight of various pension issues. The hearing will take place on Tuesday, May 5, 1998, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 2:00 p.m.
In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. Witnesses will include representatives from organizations interested in pension coverage issues, spokespersons for small business, and sponsors of pension plans. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
The private-pension system is a key element in the retirement security for many Americans. Private pensions, along with Social Security and individual savings, are the three traditional components of an individual's retirement income. For example, in 1993, 67 million workers (57 percent of all workers) worked for an employer that sponsored a retirement plan. In 1995, the Social Security system covered nearly 140.9 million employees and self-employed persons.
The tax law historically has sought to encourage the growth of private pension plans by providing favorable tax treatment to them. For example, the Revenue Act of 1921 exempted from taxation the interest income earned by certain profit-sharing plans. Since then, the tax law has evolved into a complex array of provisions designed both to encourage employers to establish private pension plans, as well as to influence their content and features. The structure of the current pension tax law attempts to balance competing objectives. The policy of encouraging the establishment of pension plans often is tempered by provisions to limit manipulation that might unduly benefit a few highly paid employees.
The tax law contains limitations on how much of a person's salary may be taken into account for the purpose of calculating contributions to a pension plan for that person. The contribution limitations (the lesser of $30,000 or 25 percent of compensation) are based on a policy judgement that tax-favored pension plans should not unduly benefit senior executives. In a similar vein, the tax law restricts the operation of "top-heavy" pension plans with respect to "key" employees, which can include a person earning $65,000 per year. The tax law also imposes requirements regarding pension plan coverage and nondiscrimination rules. The nondiscrimination rules apply a set of mechanical rules to curb the operation of a plan to unduly benefit a small number of well-paid executives.
Pension tax law also affects pension beneficiaries. For example, elsewhere the pension tax law restricts the ability of workers to receive an immediate distribution of their pension account when their employer ceases its ownership of the business because of a buyout or merger. This is known as the "same-desk" rule.
The changing nature of the American workforce also has an effect on those covered and not covered by the current pension system. In 1950, 12 percent of women with children under age six were in the labor force, compared with 64 percent in 1995. The traditional pension plan provides the most favorable benefits to persons who remain in the workforce on a continuous basis. Interruptions in the work pattern because of child-rearing priorities, can result in a disproportionate reduction in the benefits which the care-giving parent eventually receives from the pension plan.
In announcing the hearing, Chairman Johnson stated: "Our private-pension system provides the retirement security for over 100 million workers and their families. A strong pension system allows people to retire in comfort and pursue their dreams by supplementing Social Security and personal savings. But overly complex tax rules may be stifling the growth of healthy pension plans. I want to explore current pension tax law to see whether Congress should prune the law in order to make the system stronger and to reduce the unfair effect it can have on women who interrupt their careers to raise a family."
FOCUS OF THE HEARING:
The Subcommittee will review current law to identify ways to simplify the pension tax law and to spur the growth of pension plans. The likely subject matter for review includes: (1) the limitation on the contributions to pension plans based on the salary of individual plan participants, (2) modifications to the "top-heavy" rules to better target their application to senior executives, (3) proposals for more flexible ways of satisfying the nondiscrimination rules, (4) proposals for a "catch-up contribution" to benefit persons who may not have a continuous work history, (5) the treatment of reinvested Employee Stock Ownership Plan dividends, (6) the "same-desk" rule which generally restricts a participant's right to receive an immediate distribution of his or her plan account even though the employer no longer owns the business, and (7) other proposals relevant to the topic of pension simplification and growth.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement for the printed record of the hearing should submit six (6) single-space copies of their statement, along with an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, with their name, address, and hearing date noted on a label, by the close of business, Tuesday, May 19, 1998, to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Oversight office, room 1136 Longworth House Office Building, at least one hour before the hearing begins.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
1. All statements and any accompanying exhibits for printing must be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, typed in single space and may not exceed a total of 10 pages including attachments. Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record.
2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list of all clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the name, company, address, telephone and fax numbers where the witness or the designated representative may be reached. This supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press and the public during the course of a public hearing may be submitted in other forms.
The
Committee seeks to make its facilities accessible to persons with
disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event
(four business days notice is requested). Questions with regard to
special accommodation needs in general (including availability of
Committee materials in alternative formats) may be directed to the
Committee as noted above.