FOR IMMEDIATE RELEASE
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April 25, 2001

WASHINGTON – The Ways and Means Committee today approved by a 35-6 vote a bipartisan plan that would, among other things, increase the amount working Americans could contribute to their Individual Retirement Accounts (IRAs) from $2,000 to $5,000. All but six Democrats joined all Republicans in favor of the bill. H.R. 10, the Comprehensive Retirement Security and Pension Reform Act of 2001, would provide approximately $52 billion in tax relief over the next ten years.

The bill also raises the contribution limits for 401(k) plans, provides for "catch-up" contributions for workers leaving and re-entering the workforce, and expands portability so workers can take pension plans with them from job to job.

The House of Representatives could vote on the package as early as next week. A brief summary of the legislation and background information on pensions and IRA issues follow this release.

"Today our Committee has expanded and enhanced private pension opportunities for working Americans. Millions of taxpayers will have greater opportunities to save and invest for their retirements. The overwhelming bipartisan support for this package in Committee is a great step towards enactment of this important tax relief and pension reform legislation," said Chairman Thomas.

IRAs were established in 1974 and the initial contribution limit was $1,500. The limit was raised to its current-law $2,000 limit in 1981. Congress has attempted to raise the limits in the past, including most recently last Congress.

Highlights of the bill are as outlined below. These provisions are nearly identical to H.R. 1102, the Portman-Cardin pension reform legislation from the 106^th Congress that passed the House overwhelmingly last year.

The current-law $2,000 IRA contribution limit for both traditional and Roth IRAs would be increased to $5,000 ($3,000 in 2002, $4,000 in 2003, and $5,000 in 2004), and indexed for inflation thereafter.

Taxpayers age 50 and above would be permitted to contribute $5,000 to an IRA immediately beginning in 2002 (no phase-in would apply). These "catch-up" contributions would enable older taxpayers to more fully prepare for retirement.

The bill contains over 50 provisions designed to improve retirement security, including:

• Increased contribution and benefit limits in tax-favored retirement plans;
• Additional salary reduction "catch-up" contributions for workers age 50 and above;
• Shortened vesting requirements for employer matching contributions;
• Increased portability of retirement plan assets making it easier for employees to roll over assets when they change jobs; and
• A simplified pension system to encourage small businesses to offer pension plans.

Background on Pension/IRA Issues

• 76 million Baby Boomers will retire within the next 15 years, but studies show that older Baby Boomers have less than 40% of the savings needed to avoid a decline in their standard of living after they retire.
• In June, 1998, the Department of Commerce recently published the first negative personal savings rate (as a percentage of after-tax income) since 1933. The personal savings rate has declined each year since 1992 and is now at its lowest rate in 66 years. [source: Bureau of Economic Analysis]
• Half of all private sector workers still have no pension coverage. [source: Department of Labor]
• While 55% of male retirees have a pension plan, only 32% of female retirees have one. [source: U.S. Department of Labor]
• Only 20% of small businesses with 25 or fewer employees offer a pension plan. [source: Employee Benefit Research Institute (EBRI)]
• While 401(k) plans are popular options for many employees, many workers do not save enough in them. The average account balance in 401(k) accounts is only $37,323, and half of all 401(k) plan participants have account balances with their current employer of less than $10,000. [source: EBRI]
• Due to complex rules, high administrative costs and other barriers, participation in defined benefit plans has declined steadily. The number of active workers in defined benefit plans dropped 15% from 1985 to 1994. By 2005, less than half of the participants in defined benefit plans will be active workers. [source: Pension Benefit Guaranty Corporation]
• There has been no net growth in retirement coverage since 1980. [source: Markland, Pensions & Investments, September, 1996]

• Statistically, a typical retiree gets 40% of his or her income from Social Security, 19% from employer-provided pensions, 18% from personal savings, and 20% from earnings. But less than half of individuals aged 65 and older receive pensions [source: Social Security Administration]
• 401(k) plans are an important source of retirement security. According to the most recent federal statistics, there are 25.2 million active participants -- 24% of the eligible workforce -- paying into 401(k) account. [source: Pension Welfare Benefits Administration, 1993].
• In the five years since the government figures were released, figures released by Cerulli Associates in 1998 indicate that 401(k) coverage now includes about 36 million active participants – or about 36% of the total workforce.
• Employer-provided pensions pay out more in benefits ($379 billion in 1997) than Social Security ($316 billion in 1997). [source: EBRI]
• Pensions benefit workers who need the most help in achieving adequate retirement savings. 77% of pension plan participants make less than $50,000 per year. Most current pension recipients are middle income. [source: ACLI analysis of 1998 Current Population Survey]