House OKs Bill Raising Limits for IRAs, 401(k)s

W A S H I N G T O N, July 19, 2000 -- — The House overwhelmingly passed a bill raising contribution limits for individual retirement accounts and 401(k)s today, hoping to boost Americans’ anemic private savings rate, but President Clinton says it doesn’t do enough for low-income people.

The House voted 401-25 to send the measure to the Senate, with182 Democrats joining nearly all Republicans in favor. Senatesupporters say they will push for action in early September.

Sponsors called the bill a partial answer to a U.S. savings ratethat recently dropped to zero as a percentage of after-tax incomeand remains at Depression-era levels. The aging baby boomgeneration also faces a Social Security system in future financialjeopardy — and 75 million Americans have no employer-sponsoredretirement plan.

“We are committed to helping all Americans have more peace ofmind, and more financial security, in their retirement years,”said Rep. Rob Portman, R-Ohio.

IRA Limits to $5,000

The bill, which would reduce government revenue by $52.2 billionover 10 years, would gradually raise annual IRA contribution limitsfrom $2,000 to $5,000 and boost annual 401(k) plan contributionsfrom $10,500 to $15,000. People over age 50 would have accelerated “catch-up” limits,which would particularly benefit women who left the work forcetemporarily to care for children. Several changes would be made infederal pension rules to encourage more employers to offer pensionsand permit workers to carry retirement plans from job to job.

“This encourages employers to continue to put money on thetable to help lower-wage workers,” said Rep. Ben Cardin, D-Md.“It’s a well-balanced approach.”

IRAs were authorized in 1974 but contribution limits have beenincreased only once, by $500 in 1981. More than 36 million peoplenow participate in 401(k) plans — roughly a third of the U.S. workforce — but the average account balance is only about $37,300, theEmployee Benefit Research Institute says.

At the same time, traditional employer-provided pension planshave dropped from 114,000 in 1987 to 45,000 in 1997, and only abouthalf of people over age 65 receive income from pensions.

Clinton Opposes Measure

“The work force has changed, our retirement needs have changed,and the pension system has changed,” said Rep. Bill Archer,R-Texas, chairman of the House Ways and Means Committee. “This isthe right legislation at the right time.”

Despite the lopsided bipartisan vote, the White House released astatement saying the president “strongly opposes” the billbecause it would mainly add to retirement tax benefits forhigher-income people rather than the lower-income workers most inneed of help saving money.

“A better approach is to enact pension and retirement savingsincentives to reach tens of millions of working Americans who donot participate in employer-provided pension plans and have littleor no retirement savings,” the White House statement said.

A Democratic alternative modeled after government-subsidizedretirement savings account proposals made by Clinton would providea 50 percent federal tax credit — a maximum of $1,000 — forlower-income worker contributions of up to $2,000. The credit,which would cost more than $155 billion over 10 years, would phaseout above $75,000 income for a married couple, $37,500 for a singletaxpayer.

Democratic Alternative Defeated

“The problem isn’t so much what’s in” the main bill, said Rep.Earl Pomeroy, D-N.D. “The problem is what’s left out.”

But the House voted 221-200 to defeat the Democraticalternative. Republicans insisted their bill would helplower-income workers by making it easier for employers to providepensions in the first place.

“Employers maximize their benefits and, in fact, it maximizesthe employees’ savings capability,” said Rep. Bill Thomas,R-Calif. “It fits our needs today.”

Senate Finance Committee William Roth, appearing with Housesupporters at a news conference before the vote, noted that theSenate endorsed a similar approach in votes last week and said hewould push for final passage this fall in the waning days of thecongressional session.

“Even though it’s late, it’s not too late to get thislegislation through,” the Delaware Republican said. “This billgoes a long, long way toward helping Americans prepare forretirement.”