6/98 mechanical engineering: washington window

washington window

Prospects for Pension Reform Improve

By Francis Dietz

In generations past, many employees could stay with a single company through retirement, then collect their pensions. Today's work environment is less stable, however, with ever-present downsizing and the constant search for better pay or more-flexible hours. Most employees switch jobs—or even careers—several times in their lives, leaving them unsure about their retirement futures.

Engineering jobs are especially sensitive to up-and-down employment trends. Corporate restructuring, government retrenchment, and entrepreneurial desires have a tremendous impact on engineers, who in many cases do not have all the proper ingredients for a financially comfortable retirement. Furthermore, engineers often work on a project-by-project basis, making retirement savings difficult.

One way workers can reduce their retirement worries is pension portability. ASME has been involved with this issue for quite some time, having issued a general position paper in 1994 on the three major challenges facing America's voluntary private pension system. One of those concerns—the need to increase incentives to encourage individual retirement saving—was partially addressed by the Tax Relief Act of 1997, which created Roth individual retirement accounts. Congress still has a long way to go to tackle the remaining challenges: finding ways to expand pension coverage, improving pension portability, and reducing vesting periods.

Congressman Earl Pomeroy (D-N.D.), an expert in pension programs, recently introduced legislation aimed at removing barriers that prevent workers from transferring their retirement savings when they switch jobs. The Retirement Account Portability (RAP) Act of 1998 (H.R. 3503) would make it easier for employees to save for retirement and reduce leakage of retirement savings.

"The RAP Act knocks down roadblocks for employees and cuts the red tape for employers," said Pomeroy, who chairs the bipartisan House-Senate Steering Committee on Retirement Security. He said his bill is likely to be introduced as an amendment to more comprehensive pension legislation now under consideration in the Senate.

The Senate Labor and Human Resources Committee recently held a hearing on several pending pension bills. Several benefits professionals testified in favor of a simplified defined benefit plan outlined in the Secure Assets for Employees Plan (SAFE) Act (S. 883, S. 889, and H.R. 1656.)

Social Security and pension reform are still politically risky issues.

In addition, the Clinton administration recently submitted a plan to Congress that included a simplified defined benefit plan. The proposal, known as the Secure Money Annuity or Retirement Trust (SMART), would exclude professional-service employers from establishing plans, which Pomeroy opposes. A total exemption of all professional-service employers, he noted, is far too broad an exclusion.

The simplified benefit plan contained in the SAFE Act, according to hearing witnesses, would enable small businesses to give current employees up to 10 years of past service credit; the SMART plan would not allow for any such credit.

A provision in another bill, the Pension ProSave Act (S. 957), would establish a retirement savings system to be centrally administered by a portability clearinghouse. The notion of a centralized bureaucracy subject to federal oversight can be a red flag to politicians in both political parties. Pomeroy, however, testified at the hearing in favor of the ProSave Act, noting that a central clearinghouse would reduce the cost and complexity of plan administration yet promote portability.

Gene Sperling, director of the Clinton administration's National Economic Council, praised Pomeroy's RAP bill as "prosave and profamily. . . . We support this effort that further tears down the obstacle course for what should be a common goal for everyone. There's no reason for it not to pass."

In past Congresses, pension reform was of interest to a relative few, so comprehensive reform measures received little consideration. Recent moves to reform the Social Security system, however, have buoyed the hopes of pension-reform advocates that their concerns will now be addressed more quickly. Social Security reform has long been considered a "third rail" as a political issue—touch it and you'll get the political shock of your life.

The booming economy, the stock market's concomitant stratospheric levels, and younger Americans' growing realization that they are responsible for managing their own retirement funding have led to changes in how politicians view the issue. Even some Democrats are now proposing partial privatization of the system. Social Security and pension reform are still politically risky issues, but with both the president and members of Congress are calling for action, some type of reform measure is likely to pass in the next year or so with pension-reform provisions included.

To that end, ASME Government Relations is joining other engineering societies to work with congressional pension-reform advocates toward improved retirement-savings options for engineers.Francis Dietz works in ASME Government Relations in Washington, D.C.

Francis Dietz works in ASME's Government Relations Office in Washington, D.C.