Q: Why did you spend five years working to change the nation's pension laws?
A: Entangled with the federal tax code, pension law is very complicated. What’s more, no fewer than four House and Senate committees have jurisdiction over pensions. This makes ironing out a compromise challenging. In large measure, that is why it took so long to get changes through the legislative meat grinder in Washington. But our tireless, bipartisan efforts should make it easier now for more working Americans to save for their retirement. The system regulating private pension plans is too complicated, top-heavy and too often excludes those who work for small employers. The good news is, President Bush signed important retirement savings tools into law this summer that will spur tax-advantaged retirement savings among working Americans. While planning for retirement in the best case scenario ought to start with a worker's first paycheck, recent surveys show middle-aged Americans are not saving sufficiently for their retirement years. Since most people would like to retire sooner rather than later, the need for serious financial planning escalates with each passing year, especially considering that Americans are living longer than ever before. Although it may sound tempting to ring in retirement sooner rather than later, reality may come back to bite workers who aren't taking the right financial steps while still on the job. People shouldn't have to fear that they will outlive their retirement savings. That's why I have pushed so hard as a leader of the tax-writing Senate Finance Committee to enact public policies aimed at helping people save enough money to maintain their standard of living throughout their retirement years. Those who rely only on Social Security are missing two important legs of the three-legged retirement stool: personal savings including IRAs and 401(k)s and employer-sponsored retirement tools, such as defined benefit pensions. The tax reconciliation bill signed by the president in June included a package of bipartisan pension reforms designed to expand coverage for employees of small businesses, increase participation in employer-sponsored retirement savings plans, and improve opportunities for workers to catch-up and prepare for retirement.
Q: What kinds of changes in the nation's pension laws will affect workers in Iowa?
A: For those working for a smaller employer, Congress has streamlined regulatory fees and administrative burdens and added incentives to make plan sponsorship more attractive to small firms. The $1,000 registration fee with the IRS was repealed for small businesses and owners and their employees may now receive loans from their 401(k) plans. A new 50 percent tax credit will off-set the costs linked with starting a retirement plan for small businesses. Congress also raised the limits on pre-tax dollars workers may contribute to their 401(k) plans from $10,500 to $15,000. And starting next year, workers age 50 and older can take advantage of important new "catch-up" provisions that will allow them to contribute $1,000 (increasing to $5,000 by 2006) to help make up for earlier years in which they were unable to put money away for retirement. Low- and middle-income savers may take advantage of a new tax credit up to 50 percent of contributions made up to $2,000 on an IRA, 401(k), 403(b) or 457 plan. Working mothers and caregivers forced to leave and re-join the workforce will benefit from changes made to the vesting period, which was shortened from five to three years. And government workers in Iowa for the first time will benefit from a new option that will allow them to transfer their retirement savings in between the for-profit, not-for-profit and government sectors. Beyond enhanced portability, the new laws also allow an automatic roll-over of benefits into an IRA to allow even short-term workers an opportunity to accrue meaningful benefits. All of these changes are intended to boost participation in the nation's employer-sponsored pension system so that more Americans will be better-equipped to assume increasing responsibility for their financial security in retirement. I encourage Iowans to take advantage of these improvements so they can afford to maintain a comfortable lifestyle in retirement and enjoy life to its fullest once they leave the workforce.