Half of all private sector employees still do not have any retirement coverage. This is a major problem that needs to be addressed, especially in an economy as good as the one we are currently experiencing. When only 20 percent of all small businesses with 25 or fewer employees offer a pension plan, there is a serious problem with the way our government is handling retirement security.
The House of Representatives approved a comprehensive, bipartisan retirement plan on July 19 by an overwhelmingly vote of 401-25. The Comprehensive Retirement Security and Pension Reform Act (HR-1102) allows Americans the opportunity to set more money aside in an IRA or 401(k)-type plan, modernizes pension laws, and provides regulatory relief to encourage more small businesses to offer retirement plans to their employees. The legislation is a fair and balanced plan that will help millions of Americans.
Currently, contribution limits on pensions and IRAs are stuck at 1980s levels. For example, more money could have been set aside in a 401(k) plan in 1986 than could be set aside today. Thus, HR-1102 indexes contribution limits to the rate of inflation.
With Republicans working with Democrats, changes are being made in Washington. We are increasing the 1981 per year IRA contribution limit of $2,000 for both traditional and Roth IRAs to phase-in contribution of $5,000 per year ($3,000 in 2001, $4,000 in 2002 and $5,000 in 2003) and, thereafter, indexing it for inflation.
‘Catch-Up’ Contributions
However, taxpayers who are age 50 and older will not be subject to the phase-in so that they will be permitted to contribute $5,000 immediately to an IRA beginning in 2001. These “catch-up” contributions will enable older taxpayers to more fully prepare for retirement.
This clause is especially beneficial to women. Traditionally, women who chose to stay at home and raise their families were not able to set-aside money for their golden years during their “stay-at-home” times. But many of these women, after raising their families, have started careers later in life, and this clause allows them to “catch-up” and put more money aside for their retirement.
Additionally, employees will become vested and eligible for employer matching contributions in three years, rather than five. 401(k)-type pensions will be made portable so employees can more easily roll over and consolidate retirement savings into a new plan when they change jobs.
Too Little Savings
Seventy-six million baby boomers will retire within the next 15 years, but older boomers have less than 40 percent of the savings needed to avoid a decline in their standard of living after they retire. IRAs provide a critical source of retirement savings for millions of workers currently lacking pension coverage, including self-employed, part-time workers and many small business employees.
While studies show many baby boomers are not currently saving enough for retirement, a Lake Research survey found that 70 percent of baby boomers will save more in an IRA if the contribution limits were raised. Seventy-six percent of respondents in a recent national poll supported raising the contribution limits on IRAs.
The federal government should not stand in the way of Americans who want to increase their IRA contribution limits. Our future economy will benefit from the robust living of all retirees. Raising the contribution limits for traditional and Roth IRAs makes sense. Now that the House has passed legislation that addresses this issue, it is up to the Senate to follow suit.
Bilbray represents the 49th Congressional District.
