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WASHINGTON -- A group of senators is launching an 11th-hour effort to put together and win passage of a bipartisan, pro-employer pension bill before the congressional session comes to an end in the fall.
Benefit lobbyists say a slender opportunity to get pension legislation passed could emerge if congressional leaders agree to try to get a tax bill enacted this year. By drafting and agreeing on a pension package now, those provisions then could be quickly added to a tax bill.
"If there is a tax bill this year, I think there would be a great deal of interest in the House and Senate that the measure contain pension provisions," said James Klein, president of the Assn. of Private Pension & Welfare Plans in Washington.
"We would certainly try to attach as much as possible" to a tax bill, said a Senate committee staffer involved in writing the pension measure.
The effort is being led by Sens. Charles Grassley, R-Iowa, and Bob Graham, D-Fla. Other senators that are part of the effort include Orrin Hatch, R-Utah, John Breaux, D-La., and Max Baucus, D-Mont.
"If we expect pension coverage to increase, we have to chip away at the unnecessary requirements on employers," Sen. Grassley said.
The senators already have produced a draft proposal, which, after further changes, could be introduced as soon as next week. In the House, Ways and Means Committee staffers also are trying to assemble a pension bill based on proposals that already have been introduced.
The pension reform proposals being put together are scaled down from sweeping measures earlier introduced that, among other things, call for big increases -- at a considerable loss of tax revenue -- in the amount of benefits that can be provided through pension plans.
"For the most part, we are talking about technical changes and improvements," said Nell Hennessy, former deputy executive director of the Pension Benefit Guaranty Corp. and now a senior vp in the Washington office of benefit consultant ASA Inc.
"It is reform with a lowercase R," said Henry Saveth, an attorney with William M. Mercer Inc. in Washington.
The likelihood that a pension bill -- much less a tax measure -- can be enacted in the remaining weeks of the session is uncertain.
"While there is a possibility that bits and pieces could find their way to some type of revenue or tax bill, I just don't think there will be time for it," said Stuart J. Brahs, vp-federal government relations with The Principal Financial Group in Washington.
"For all practical purposes, pension legislation does not stand a high chance of being enacted in the short time remaining," said Frank McArdle, a consultant with Hewitt Associates L.L.C. in Washington.
Others, though, say even if a pension bill fails to win approval this year, reaching a consensus now on a bipartisan package could set the stage for passage when legislators return next year.
"A long journey starts with a single step," said the APPWP's Mr. Klein.
Several provisions in the Senate draft bill will be welcomed by employers, including a provision that would make it easier for employers to cash out terminating employees whose defined contribution plan account balances are less than $5,000.
Under current law, if an employee's account balance ever exceeded $5,000, an employer cannot automatically cash out that individual from the plan. By contrast, the Senate draft bill would eliminate that "look-back" rule and set the $5,000 cash-out threshold at the time the employee terminates employment. A balance could drop below $5,000, for example, if an employee took out a loan against his or her balance.
Such a liberalization of the cash-out rule would be welcomed by employers, as they would be able to remove more former employees from their defined contribution rolls, cutting their administrative costs as well as eliminating the need to track changes in account balance amounts prior to employees terminating employment.
Other provisions would benefit employers and employees. For example, the draft bill would raise to 75 from 701/2 the age at which retirees must take a "minimum distribution" from their defined contribution plans. In addition, the first $300,000 of a retiree's defined contribution plan account balance would be exempt from the minimum distribution rule and could remain in the plan.
For employees, liberalizing the minimum distribution rules would mean their account balances could earn more tax-deferred interest before funds would have to be withdrawn.
And because of the new $300,000 exemption, employers no longer would have to calculate -- for retirees with fairly hefty account balances -- how much those retirees would have to take out of their defined contribution plans each year.
Other provisions, though, could increase, albeit modestly, employers' costs. The measure, for example, would require employers with 401(k) plans to vest matching contributions within three years. Currently, such contributions must vest within five years if a cliff vesting schedule is used, or seven years if a graded schedule is used.
Another provision -- elimination of the so-called 25% of compensation limit -- would be a boon to employees whose spouses also work.
Under current law, employees generally can defer up to $10,000 a year to a 401(k) plan. However, 401(k) salary deferrals are also subject to a cap of 25% of an employee's compensation. For example, an employee earning $30,000 annually could defer only a maximum of $7,500 -- not $10,000 -- to the plan. Eliminating the 25% limit would allow that employee to defer the full $10,000.
This provision would be especially helpful for lower-income employees whose spouses are relatively well-off and, thus, could afford to put aside such a large amount of salary into a 401(k) plan.
Other provisions in the draft bill would:
* Add new flexibility to Internal Revenue Service non-discrimination tests. Those tests set precise formulas -- such as comparing the percentage of rank-and-file employees covered by a pension plan to highly paid employees -- to determine if the plan is non-discriminatory.
The Senate draft bill would give employers facts and circumstances tests to use when mechanical tests are not appropriate. Appropriate safeguards, which are not defined, would be developed to ensure that this alternative is not abused.
* Allow employees who change jobs to transfer 401(k) account balances to 403(b) plans -- the tax-exempt world's rough equivalent of private sector 401(k)s -- and vice-versa. Such transfers now are barred.
Similarly, the measure would allow employees to move individual retirement account balances to a 401(k) plan, a new flexibility that would appeal to employees who want to consolidate their savings plans' accounts.
* Gradually phase in for employers starting new pension plans the Pension Benefit Guaranty Corp.'s variable rate premium, which is imposed on employers with underfunded plans. The variable rate would be phased in over a six-year period for those employers.
* Give the IRS authority to waive a rule that now requires employees -- in order to escape tax penalties -- to roll over pension distributions to an IRA within 60 days of receiving the distribution.
* Exempt small employers starting new pension plans from certain IRS fees. Those fees range from roughly $100 to about $1,000.
* Give tax credits to small employers starting new pension plans.
* Extend the PBGC's missing participant program to multiemployer plans. This program, in which the PBGC assumes responsibility for locating missing participants who are owed benefits, now only applies to single-employer plans.
* Make clear that the cost of employer-provided retirement planning and education is not added to employees' taxable income.