Congress to Tinker With Ways to Spur Retirement Saving

Faced with mounting evidence that millions of American workers are not prepared to pay for their golden years, Congress has begun crafting ways to encourage retirement savings.

It's a daunting challenge. Recent studies suggest that half the nation's nongovernment work force is not covered by any private pension plan. And most economists agree that without reforms, Social Security will run out of money early in the next century as the baby-boom generation retires.

Unless more workers begin socking away money in employer-backed pension programs, analysts warn, lawmakers could soon be forced to choose between two unsavory options: spend billions more on programs for senior citizens or risk a proliferation of the elderly poor unrivaled since the Great Depression.

Although Democrats and Republicans could vote next week to pass some minor adjustments designed to expand coverage, most observers say fundamental reform has yet to reach the table.

"Congress is taking a step toward pension [reform], but it's relatively limited in scope," says Dallas Salisbury, director of the Employee Benefits Research Institute in Washington. "There's an absence of candid discussion on these issues."

Since the early 1980s, Congress has encouraged more retirement savings by creating tax-deductible Individual Retirement Accounts (IRAs) and by allowing businesses to offer tax-free 401(k) programs to which both employers and employees can contribute. This $32 billion subsidy has become the nation's largest tax break, surpassing even the popular home-mortgage deduction.

By all accounts, these reforms have sparked investment. Since 1975, total assets in pension programs have leapt from $290 billion to $3 trillion: of which $1.2 trillion are held in 401(k) or similar "defined contribution" plans.

Nevertheless, studies show that the percentage of workers covered by private pension plans has stagnated. One reason is that many low-income workers cannot afford to set aside any money for retirement. Others do not stay at a job long enough to qualify for pension coverage. In addition, only 24 percent of small businesses with fewer than 100 employees offer pensions at all.

The challenge for lawmakers is to address these problems without spending more money. Already, House Republicans, Senate Democrats, and President Clinton have unveiled pension reform packages. Next week, Senate minority leader Tom Daschle (D) of South Dakota plans to introduce some of his provisions as part of a package of tax breaks for small businesses designed to offset the cost of raising the federal minimum wage.

Staff members say these proposals, which must be approved in advance by Republicans, will be limited in reach, mirroring a pension-reform bill passed in May by the House.

THE House bill would allow employees at companies with fewer than 100 workers to contribute up to 3 percent of their salary, or $6,000 a year (whichever is less), to a company-sponsored retirement plan. Employers would be allowed to match these contributions up to 3 percent, but would be allowed to reduce the match to 1 percent in tough economic times. The bill also contains a handful of proposals to cut red tape.

Although Democrats generally like this bill, they argue that it doesn't do enough to ensure that lower-paid workers participate. Democrats favor raising the top matching rate to 5 percent and requiring companies to contribute 1 percent of workers' salaries into their accounts, even if they contribute nothing.

Another Democratic proposal would allow spouses to collect a larger percentage of their working partner's death benefits. Other possible reforms include allowing employees to transfer pensions from job to job, making more workers eligible for IRA deductions, stiffening penalties for companies that misuse pension funds, and permitting employees to withdraw retirement money for college tuition or first-time home purchases.

To many analysts, these reforms are positive but minor developments. "Pension security keeps popping up as an issue for older voters," says Karen Ferguson, spokeswoman for the Pension Rights Center, a policy research group in Washington. "So everybody is scrambling to come up with proposals that sound like security. The problem is, they have little to do with addressing it."

Although Democrats have vowed to push more fundamental pension reforms - everything from raising the retirement age to allowing workers to invest some of their own Social Security benefits - such innovations are likely to become casualties of the election season.

Part of the reason no substantial reforms have been considered, analysts say, is that Democrats may use pension reform as a political weapon.

Last year, Republicans backed a measure that would permit companies with large surpluses in their pension funds to spend that money, without penalty. While Republicans argued the move would create jobs, Democrats described it as a bid to allow companies to "raid" their pension funds and "rob" workers of their retirement money.

To many observers, such political attacks are masks for failing to take the political risks necessary for real reform.

"What we're really seeing is policymakers on both sides ducking the hard issue of the day," Ms. Ferguson says. "How you provide the typical full-time worker with the supplement he needs to Social Security."