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IRA/401(k) limits may rise

Curt Anderson (AP)/WASHINGTON -- The House overwhelmingly passed legislation Wednesday to increase the amount of money Americans can put in IRAs and 401(k) plans and to give companies greater incentive to offer traditional pensions to workers.

The lopsided 407-24 vote -- a rarity on a tax bill in a Congress narrowly divided between Republicans and Democrats -- should send a strong message to the Senate, where a nearly identical bill died last year, sponsors said. President Bush has expressed support for the approach but did not include retirement measures in his package of tax cuts.

At an estimated cost of $52 billion over 10 years, the bill gradually would raise contribution limits for tax-deferred traditional and Roth individual retirement accounts from $2,000 to $5,000 by 2004 and for tax-deferred 401(k)-type plans from $10,500 to $15,000 by 2006.

People age 50 and older would get special provisions raising their contribution limits more quickly. The legislation would not, however, change the income limits that prevent some middle-to-upper-income people from participating.

Supporters said the bill would boost a U.S. savings rate now at the lowest level in 67 years and supplement Social Security, which faces an uncertain financial future just as 76 million baby boomers begin to retire.

"Social Security isn't enough. It's hard to live on," said Rep. Rob Portman, R-Ohio, the main sponsor along with Rep. Ben Cardin, D-Md. "People need to have increased savings."

The measure contains more than 50 provisions intended to prompt more companies to offer pensions, enhance those pensions and simplify the system, from faster vesting requirements to greater portability of pension plans for employees who change jobs.

About 70 million American workers are not covered by a pension plan. While 401(k) plans are increasingly popular, the Employee Benefits Research Institute estimated that the average account balance is only about $37,000 -- and half of all 401(k) participants have saved less than $10,000.

A study released by the Financial Services Roundtable, which represents 100 major financial companies, found that the increased limits will not only boost savings but also cut taxes for millions by deferring more of the taxes owed.

A family of four with $50,000 in income and a 401(k) plan, for example, would see a 28 percent tax rate cut when the measure is fully implemented in five years. The same family with $75,000 in income would see a 13 percent cut.

"This bill provides individual tax relief," Cardin said.

Despite its popularity, many Democrats say the bill does little for lower-income people who have the most trouble saving for retirement.

"The problem isn't what's in the bill. It's what is left out," said Rep. Earl Pomeroy, D-N.D.

But the House voted 223-207 to defeat an amendment by Rep. Richard Neal, D-Mass., to create maximum $1,000 tax credits for lower-income people to invest in an IRA or 401(k) plan and provide credits for small businesses that offer retirement plans.

The issue is likely to resurface in the Senate, where a similar bipartisan bill includes more limited credits for lower-income people.

The House also voted 276-153 against an effort by Rep. Bernie Sanders, I-Vt., to require companies to give workers a choice when changing from a traditional pension plan to a cash balance plan, which critics say can sharply reduce benefits.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, said the retirement measure was not likely to be included in the compromise 11-year, $1.35 trillion version of Bush's tax cuts. That means it must win at least 60 votes to avoid delaying tactics in the Senate.

Still, Sen. Pete Domenici, chairman of the Senate Budget Committee, predicted the legislation would clear the Senate this year, perhaps attached to unrelated legislation.

"Before this year passes, it's coming to a head and probably getting passed," Domenici, R-N.M., said in an interview.

Information on the bill, H.R. 10, can be found at

(c) 2001 Associated Press

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