Slow-Mo in D.C. on Retirement Issues

The past year saw plenty of debate but few results on matters from Social Security to pension protection. Here's what 2006 may bring

Despite the blaring headlines and news stories about the impending demise of traditional pensions, the potential shortfalls in Social Security, and the shrinkage of health coverage for retirees, Washington's primary legacy from 2005 is a long agenda of unfinished business (see BW Online, 1/09/06, "The Rush to Shut Down Pensions").

Issues remain on the docket relating to all three legs of the retirement stool -- Social Security, pensions, and personal savings -- as well as Medicare, which for many retirees will be as important as the other three legs put together. Let's recap where the issues stand and what we might be able to expect in 2006.

PRIVATIZATION FIZZLES. Early last year, Social Security reform took up a tremendous amount of President Bush's time. In his State of the Union address, he spelled out "basic principles to guide" reform. These included not raising payroll taxes, protecting the expected benefits of people 55 and older, and creating private "voluntary personal retirement accounts." Then, he and other Administration leaders barnstormed the country to rev up support for his proposals.

Key committees in both the House of Representatives and Senate held hearings, but they found no public groundswell of support. Senator Charles Grassley (R-Iowa), chairman of the Senate Finance Committee, has said he doesn't expect Congress to give serious consideration to the issue again until 2009. That's after this year's midterm elections and the 2008 Presidential race.

When it comes to pensions, expect action sooner. The returning Congress is more likely to enact some new pensions law this year by coming to a conference agreement on bills already passed by both houses. The most prominent issue addressed by the "Pension Protection Act of 2005," passed on Dec. 15 by the House, and the "Pension Security & Transparency Act," approved by the Senate on Nov. 16, is the need to shore up the system that guarantees traditional pensions.

CRACKING NEST EGGS. Currently, employers are required to keep their contributions to these pension funds at a level that will ensure the money is there when employees retire. If employers fall behind and a pension fund fails, the federal Pension Benefit Guaranty Corporation (PBGC) takes over the plan and pays at least a portion of the pensions employees were promised. In recent years, a spate of underfunding crises -- especially those related to airline bankruptcies -- have shown that existing requirements aren't stringent enough (see BW Online, 5/09/05, "The Medicine for Ailing Pensions?").

Each bill has its own formula for how much money the employer must contribute -- and how fast. The final bill could include requirements that would reduce or freeze your benefits if your company doesn't meet whatever standards are adopted in the legislation.

The pension bills going to conference committee also contain numerous changes in 401(k)s and other employer-sponsored retirement accounts. Many of these have been percolating for years in other legislative proposals. They're driven by a concern that Americans don't take full advantage of 401(k)s and other retirement savings accounts, and that when they do, they lack the financial knowledge to make good investment decisions.

MIRED IN TAX DEBATE. Some of the these bills' specific proposals include making it easier for employers to automatically enroll new employees in 401(k) plans and to automatically channel their investments into certain default funds; increasing access to investment guidance for 401(k) participants; and allowing taxpayers to automatically deposit part of their tax refund into a retirement account. (To learn more about automatic enrollment, see one of my previous columns in BW Online, 10/8/04, "Putting Your 401(k) on Autopilot") .

The Senate bill gives a nod to the trend toward "phased retirement," in which people may work part-time or in some other flexible arrangement before retiring fully. It would amend the law that prevents employees from receiving a pension unless they are fully retired, allowing people 62 and older to start receiving a pension while they continue to work.

Retirement-savings issues also surfaced in November, when the President's Advisory Panel on Federal Tax Reform issued a final report. The panel recommends replacing the current, complicated list of different types of IRAs and employer retirement savings plans with two basic types of accounts: "Save at Work" and "Save for Retirement." The plans, however, are only one feature of a proposal to totally overhaul the federal tax system, and Congress hasn't shown much interest in pursuing the recommendations.

MEDICARE-DRUG MORASS. Other unfinished business related to the implementation of the new Medicare Part D drug benefit, which went into effect Jan. 1. Medicare has issued a plethora of brochures, flyers, and CDs, and posted a complex Web site. But frustrated seniors are still trying to figure out if they're eligible and how to choose the best plan.

This is largely due to Congress' legislative framework, which emphasized making a thousand different drug coverage plans bloom and carved out a "doughnut hole" that requires recipients to pay for all of their drug costs between $2,250 and $3,600. If you or a relative need help, start by following the tips offered by the Medicare Rights Center, an advocacy group for Medicare recipients.

Finally, all of the issues mentioned above and many more came into play in early December at the Fifth White House Conference on Aging, which takes place once every 10 years. Some 1,200 delegates discussed topics such as long-term care, work opportunities for older Americans, and new technology to help aging Americans remain in their homes. But the gathering saw more networking going on than anything else. President Bush was the first President to not even address his "own" White House Conference on Aging .

COUNT ON YOURSELF. But that's not really surprising, as evidenced by the text of the Social Security resolution adopted by the conference: "establish principles to strengthen Social Security." After years of special reports, commission, and studies, the President thought he had already done that in his State of the Union address.

Given that 2005 was a year of considerable activity on retirement issues but few results, the key retirement issues are whether any work will be completed in 2006, and how either congressional action or inaction will affect current retirees and future ones. On the other hand, your elected officials sent one important message: Maintain your focus on and commitment to saving and preparing for your own retirement. You can't count on any further help from the policymakers in Washington.

READER COMMENTS

In addition to writing Your Retirement for BusinessWeek Online, Hoffman is the author of The Retirement Catch-Up Guide and Bankroll Your Future Retirement with Help from Uncle Sam. You can contact her through her Web site, www.retirementcatchup.com
Edited by Patricia O'Connell

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