Home | About NCTR | Resources | Meetings | News Room | Member Directory

February 15, 1998

Rep. Pomeroy Agrees to Back Portability Measure

by Cindie Moore
NCTR Washington

Counsel Rep. Earl Pomeroy (D-ND) will sponsor legislation at the behest of NCTR and other groups that will:

• allow amounts in 403(b) and 457 plans to be used to purchase service credit in defined benefit plans; and
  
  
• allow the rollover of distributions from defined benefit plans into 403(b) or 457 plans.

These changes will provide portability between defined benefit plans and 403(b) and 457 plans. The Congressman will add these provisions to his Retirement Account Portability (RAP) Act and is delaying the introduction of the bill to include it. His proposal already includes authority for the movement of money between and among 403(b), 457, and 401(k) plans. With respect to the purchase of service credit, the change will permit, though not require defined benefit plans to accept 403(b)/457 plan amounts. With respect to roll over distributions, the change will permit, though not require, 403(b)/457 plans to accept such distributions. The NCTR Legislative Committee members discussed at great length the merits of moving money between defined benefit plans and 403(b)/457 plans during their recent meeting in Washington. They decided that these provisions will be helpful in providing additional portability options for plan participants. During the meeting, Emile Parker, President Clinton's pension policy advisor, appeared and expressed great interest in the proposal.

With the backing of the Legislative Committee, Scott Engmann, former NCTR President and Executive Director of the North Dakota Retirement and Investment Office, and other administrators asked the Congressman for his support of the proposal. Now that we have the Congressman's support, we have been circulating a draft for your discussion. I have gotten very helpful comments and appreciate your time and interest. We expect the Congressman to introduce his bill, including our proposal, before the end of the month.

Congressional Staff Say that Pensions and Social Security will be Key Issues in 1998

The NCTR Legislative Committee heard from Russ Sullivan, Sen. Bob Graham (D-FL), Wes Coulam, Sen. Orrin Hatch (R-UT), and James Delaplane, Rep. Earl Pomeroy (D-ND) on various pension issues and Social Security. Frank Mulvey with the U.S. General Accounting Office (GAO) discussed Social Security as well as the specific issue of the agency's study of the effect of mandatory Social Security coverage of state and local government employees. Bob Warden, Counsel for OPPOSE, a group that works against mandatory coverage, also spoke on the issue. Here's a summation of their thoughts.

• The White House Retirement Savings Summit will provide an intense focus of attention on pension issues in 1998.
  
  
• Opportunities for increased pension portability are possible.
  
  
• Simplified defined benefit plans are actively being discussed for small business. Although not of direct interest to NCTR members, this discussion shows congressional support for defined benefit plans, which has been absent for years.
  
  
• Congressional hearings on a GAO report on mandatory coverage will take place this Spring and the report will be released sometime thereafter.
  
  
• Reform of Social Security's funding will likely be studied and discussed nationwide, with possible action as early as 1999.

A Key Focus for Pensions in 1998: White House Retirement Savings Summit

Just before Congress adjourned last year, President Clinton signed the Savings Are Vital to Everyone's Retirement Act of 1997, the SAVER Act. The Act will promote retirement savings in two ways. First, it directs the Department of Labor to maintain an ongoing program of public information and outreach through: (1) public service announcements, (2) public meetings, (3) creation of educational materials, and (4) establishment of a site on the Internet.

Second, the Act mandates a National Summit on Retirement Savings at the White House, co-hosted by the executive and legislative branches. The Summit would facilitate the development of a broad based, public education program and develop specific recommendations for actions by both the public and private sectors to promote retirement savings among American workers. The National Summit would be organized as a public-private partnership, pairing the Department of Labor with an organization such as the American Savings Education Council (ASEC).

The SAVER Act specifies a long list of activities that the Summit participants must carry out. Of interest to us in the public sector is the requirement that they develop recommendations for the coordination of Federal, State, and local retirement income savings initiatives among the Federal, State, and local levels of government. No one knows what such coordination should or will consist of particularly inasmuch as many teacher and other State and local government retirement systems already have extensive pre-retirement programs for their plan participants. These programs include not only specific information about the benefits for which the participants will be eligible, but also general information about how participants should prepare for retirement. The retirement systems have pre-retirement counselors who travel throughout the State meeting with plan participants.

A definite date for the Summit has not yet been set, but it must, by law, occur by July of this year. Summits in the years 2001 and 2005 are also required.

SAFE Plan Promotes Defined Benefit Plans

Federal treatment of defined benefit (DB) and defined contribution (DC) plans has been quite different since the enactment of ERISA in 1974. Congress has worked over the years to create simple DC plans, such as payroll deduction IRAs and simplified employee pension (SEP) plans. By contrast, it has increased the cost and regulation of DB plans. For example, it reduced over the years their funding flexibility (applicable to private plans only) and increased regulation, especially in the 1986 Tax Reform Act, in the area of nondiscrimination standards (although these standards were made inapplicable for State and local government plans in 1997).

Evidence of a change in this anti-DB plan attitude came about last year when the Secure Assets for Employees (SAFE) Plan was introduced by Representatives Earl Pomeroy (D-ND), Nancy Johnson (R-CT), and Harris Fawell (R-IL) (H.R. 1656). On the Senate side, identical legislation was included in a pension package sponsored by Senator Bob Graham (D-FL) and Senator Orrin Hatch (R-UT) (S. 889). Senator Judd Gregg (R-NH) , chairman of the Senate GOP pension task force, also included the measure in his bill (S.883). The SAFE Plan would provide a simple DB plan designed for small businesses with fewer than 100 workers. It would set up individual employee accounts (SAFE accounts) that would be fully funded and fully vested. The plans would be available to all workers earning more than $5,000 and thus would not be subject to the nondiscrimination testing requirements. The White House has proposal a similar measure called SMART (Secure Money Annuity or Retirement Trust. If pension measures move this year, a SAFE or SMART-type plan will likely be among them.

Prognosis for Pension Legislation Unclear; Summit will Help

Historically, pension legislation does not move on its own, but rather, is attached to a larger tax bill. The pension changes for governmental plans in 1996 and 1997 were approved in this way. Any tax bill proposed this year would likely contain tax cut to soak up some of the budget surplus. Not all Members of Congress support using the surplus in this manner. Others want to use it to shore up Social Security's funding or to pay down the national debt. Thus, a tax bill is not a sure thing. If a bill does move, however, pension legislation such as SAFE or RAP will likely be included. As noted, the Retirement Savings Summit will also help highlight pension issues and may provide impetus to the passage of legislation.

Social Security Generally: Touch It and You Die

While Congress is not expected to adopt legislation on Social Security reform in 1998, the groundwork may be set this year for major reforms in 1999. The Social Security trust funds have a long-term deficit and without any changes, full benefits may not be paid after 2028.

Politicians in Washington compare Social Security to subway tracks; the issue is the "third rail of politics: touch it and you die." The President has discussed holding non-partisan forums around the country during 1998 as a means to build support for reform of the system and avoid the negative fall out when unpopular decisions are finally made on the issue.

Meanwhile, Rep. Bill Archer (R-TX) and Rep. John Kasich (R-OH) have proposed a Bipartisan Panel to Design Long-Range Social Security Reform (H.R. 3095). The panel is to report its findings by February 1, 1999. Another study proposal will be introduced shortly by Reps. Jim Kolbe (R-AZ) and Charles Stenholm (D-TX) to create a bipartisan, congressional "super committee" to examine Social Security reform. The two lawmakers lead the Public Pension Caucus in Congress, which has been looking at reform for a number of years.

Proposals to put Social Security on a sounder footing include:

• Allowing younger employees to put a portion of their Social Security payroll taxes into private tax-deferred retirement accounts.
• Gradually increasing the age for retirement eligibility.
  
• Lowering future cost-of-living adjustments.
  
• Gradually reducing spousal benefits.
  
• Slightly increasing payroll taxes.
  
• Taxing Social Security benefits like employer-sponsored pension benefits.
  
  
• Requiring new State and local government employees to pay Social Security taxes (see more discussion about this issue below).

All of these "fixes" being proposed for Social Security are very controversial. Spurring action will be the growing realization that 1) some kind of action is needed and 2) the budget surplus may make the job easier. In his State of the Union address, the President announced that we should "save Social Security first." Specifically, he wants to reserve 100% of the surplus until a plan for re-financing the system is approved. As noted above, many in Congress have other ideas for using the surplus. Because of the general acknowledgment of Social Security's financial problems, Congress will have difficulty dismissing the President's proposal as unacceptable.

GAO Looks at Cost of Mandatory Social Security

The General Accounting Office (GAO) is examining mandatory Social Security coverage for newly hired State and local government employees as one of the funding options in light of last year's recommendations by the Social Security Advisory Council. The House Ways and Means Subcommittee on Social Security requested the study, which may be completed as early as July. GAO is studying the cost impact of such coverage on States and localities and comparing the retirement benefits currently provided under State and local retirement systems with Social Security coverage. Hearings on the issue are expected this Spring. The study should be released shortly thereafter.

Health Care Attracting Attention in Washington

Although the speakers at the Legislative Committee meeting focused on pensions and Social Security, debate on health care issues may flare up in Washington this year.

Medicare Expansion Hot Issue

Congress established a bi-partisan commission last year to recommend reform of Medicare financing. Ideas in circulation for the commission's consideration are: a boost in the premiums; cutting benefits; means testing (i.e., charging higher income Medicare beneficiaries more than lower income ones); and giving beneficiaries vouchers to buy coverage.

Because the deadline for the recommendations is set for March 1999, few Washington observers expected, until recently, any substantive debate on the issue. President Clinton changed that expectation when he proposed last month to extend Medicare to those as young as 55. The proposal will ensure a lively debate.

Under the proposal, health insurance would become available to millions of potential retirees aged 62 to 65 and another 700,000 dislocated workers 55 and older who either can't afford or lack access to comprehensive health care. In order to receive the Medicare benefits, the early retirees would be required to pay a premium of roughly $300 a month, and for those who involuntarily lose their jobs the cost would be $400. Another feature of the proposal would target people who retired early but were left uninsured when employers backed out on promises to provide them health insurance. This group would be offered the opportunity to buy insurance from their former employers until they are old enough to qualify for Medicare.

The White House argues that the new plan would not add significantly to Medicare's costs because new enrollees would pay premiums that would entirely cover their costs over time. Under the plan, early retirees would not only pay a monthly premium, but once they reached age 65, they would also be required to pay roughly $10 to $20 a month more for each year of early retirement than those who waited to enroll.

Skeptics of the proposal assert that no meaningful action on Medicare financing reform should take place until the Commission issues its report. Advocates argue that because the proposal is designed to pay for itself, it can be considered separately from the Commission's report which will concern overall financial reform of Medicare.

HMO's in Spotlight

Patient Access to Responsible Care Act (PARCA). Rep. Charles Norwood (R-GA) has introduced legislation placing federal requirements on the managed care industry (H.R. 1415). Senator Alfonse D'Amato (R-NY) has introduced the Senate version (S. 644). Among other things, the bill would require employer health plans to allow enrollees to select their personal physician, eliminate pre-authorization requirements for emergency room visits, pay for specialist care recommended by a primary doctor, and allow patients who have been denied care to appeal those decisions to a neutral third party. Support for the measure is strong in the House where a majority of members have signed on to it. The Senate effort is just getting underway with only four cosponsors. The affected industry is working to defeat it.

President's Bill of Rights for Patients. The President is also proposing a health care bill of rights for users of managed care plans, covering the following issues:

• Doctors should not be prohibited by health plans from telling patients about all options for treating them, no matter how expensive.
  
  
• Plans should be required to pay for emergency services if a "prudent layperson" could reasonably expect that the absence of medical care would place the patient's health into serious jeopardy.
  
  
• Patients who believe their health plan failed to provide or pay for coverage should be able to appeal to an independent, outside review panel.
  
  
• Patients should have adequate information to help them select a doctor, including how much experience they have performing specific procedures, whether they have been disciplined and whether they receive bonuses from health pans to withhold care.