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Contact: Rebecca Rudman
202-225-1986
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REP. CALVERT APPLAUDS PASSAGE OF PENSION PROTECTION ACT
Washington,
Thursday, December 15, 2005 -
Today, Rep. Ken Calvert voted in favor of H.R. 2830, the Pension Protection Act, which passed the House by a vote of 294-132.
“Workers rightfully expect their pension benefits to be there for them when they retire and this legislation will help ensure employers adequately fund pensions,” said Rep. Calvert. “Hard-working Americans who contribute to pension plans are entitled to the future they planned and saved for. This bill will protect these futures by providing employers with increased requirements as well as improved methods for funding employee pensions.”
Funding Reforms for Single Employer Pension Plans
Strengthens the outdated funding rules to ensure that workers’ traditional defined benefit pensions are adequately funded.
Employers must fund up to 100 percent of their pension liabilities. Funding shortfalls must be filled within seven years. Current law requires employers to fund only 90 percent of their liabilities (80 percent in some cases) and provides for amortization periods as long as 30 years.
Severely underfunded plans are subject to accelerated funding rules to reduce the risk of plan termination with inadequate funding.
Employers are prohibited from funding executive compensation plans when pension plans of rank-and-file workers are severely underfunded. As under current law, executive compensation is not protected if the employer files for bankruptcy.
Creates incentives to increase pension contributions during profitable years.
Gradually increases the flat-rate premium paid to the Pension Benefit Guaranty Corporation (PBGC) from $19 to $30 per participant and indexes the premium annually to reflect wage growth. In addition, employers that terminate their plans in bankruptcy must pay a $1,250 premium per participant for three consecutive years once they emerge from bankruptcy.
Funding Reforms for Multiemployer Pension Plans
Most amortization periods for multiemployer plans are reduced from 30 years to 15 years.
The maximum tax-deductible funding limit is increased from 100 percent of the full funding limit to 140 percent of current liability, thus encouraging increased pension contributions during profitable years.
Triggers are used to identify financially troubled plans and to measure financial improvement.
Plans with a funding status between 65 and 80 percent are deemed to be endangered (“yellow zone”). The trustees must adopt a financial plan to improve funding by one-third within 10 years (or by one-fifth within 15 years, in some cases).
Plans that are less than 65 percent funded are deemed to be critical (“red zone”). Trustees must adopt a reorganization plan to exit the red zone within 10 years. The plan must include a combination of measures to reduce costs and increase contributions.
Enhancing Retirement Savings in IRAs and Pension Plans
Makes permanent the IRA and pension provisions enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001. The 2001 law increased annual contribution limits for IRAs and qualified pension plans, created additional “catch-up” contributions for individuals age 50 and older, and created incentives for small employers to offer pension plans.
Permanently extends the saver’s credit, which is scheduled to expire after December 31, 2006. In addition, taxpayers could choose to have the IRS directly deposit the credit to a savings account, IRA or pension plan.
Encourages employers to automatically enroll workers in defined contribution (DC) pension plans. Employees would be given the option to opt-out. Many pension experts believe that automatic enrollment will increase pension participation and retirement savings.
Directs the Treasury to provide for “split tax refunds” in which taxpayers may direct all or a portion of their tax refund to be automatically deposited to an IRA of their choice.
Allows tax-free rollovers from the IRA or pension of a deceased individual to an IRA or pension of a designated beneficiary. Under current law, such transfers are tax-free only if made to the account of a spouse.
Allows disabled individuals to contribute to an IRA even if they do not have earned income, thus increasing retirement savings opportunities for individuals with disabilities.
Affordability of Health Care and Long-Term Care
Allows public safety officers who retire or become disabled to make tax-free distributions of up to $5,000 annually from governmental pension plans if the distribution is used to purchase health or long-term care insurance.
Encourages the development of combination insurance products, which provide consumers with various insurance protections in a single product while also providing a saving feature. Combination products may be more attractive to consumers and less expensive.
Allows taxpayers to carry forward up to $500 of unused Flexible Spending Account (FSA) balances each year. The provision applies to health care FSAs and dependent care FSAs. In the case of health care FSAs, the unused amount may be transferred to a Health Savings Account.
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