Growing The Nest Egg
In what's sure to become an election year issue, the House of Representatives has approved a plan to let Americans set aside more of their own money for retirement.
CBS News Correspondent Bill Plante reports the bill, which would increase contribution limits on individual retirement savings, passed the House overwhelmingly, 401 to 25. Despite strong opposition from the White House, nearly half of those votes in came from Democrats.
The House plan would raise the limit on individual retirement account contributions from $2,000 to $5,000 annually over the next three years. People aged 50 and over could "catch up," contributing $5,000 immediately.
Also under the plan, your before-tax contributions to a 401(k) plan would rise from $10,500 to $15,000 in 2005. Again, people over 50 could "catch up" by contributing even more.
IRAs were authorized in 1974, but contribution limits have been increased only once - by $500 in 1981. More than 36 million people now participate in 401(k) plans - roughly a third of the U.S. work force - but the average account balance is only about $37,300, the Employee Benefit Research Institute says.
At the same time, traditional employer-provided pension plans have dropped from 114,000 in 1987 to 45,000 in 1997, and only about half of people over age 65 receive income from pensions.
"The work force has changed, our retirement needs have changed, and the pension system has changed," said Rep. Bill Archer, R-Texas, chairman of the House Ways and Means Committee. "This is the right legislation at the right time."
Sponsors of the bill, which also makes pensions more portable, said it will increase savings and allow more people to start retirement plans.
"Seventy million Americans - that's half the American work force today - do not have a pension, a 401(k) or any kind of pension plan," said Rep. Rob Portman, R-Ohio.
But that lack of pension plans is exactly what this bill won't fix, said the White House, which fired off what one official called a "stop the madness" letter to Congress.
"The president is increasingly concerned about the spending binge under way in Congress ... with the political conventions drawing near … on bills that deplete the projected budget surplus at a rapid rate," the White House statement read.
Wednesday's vote and the White House letter to Congress signal a concern bordering on panic that Republican plans to spend the huge federal budget surplus are connecting with voters. For years, it was Republicans who preached fiscal responsibility. Now, Democrats are finding it just as hard to sell.
In fact, a Democratic alternative to the House plan modeled after government-subsidized retirement savings account proposals made by President Clinton would provide a 50 percent federal tax credit - a maximum of $1,000 - for lower-income worker contributions of up to $2,000. The credit, which would cost more than $15 billion over 10 years, would phase out above $75,000 income for a married couple, $37,500 for a single taxpayer.
"The problem isn't so much what's in" the main bill, said Rep. Earl Pomeroy, D-N.D. "The problem is what's left out."
But the House voted 221-200 to defeat that Democratic alternative. Republicans insisted their bill would help lower-income workers by making it easier for employers to provide pensions in the first place.
"Employers maximize their benefits and, in fact, it maximizes the employees' savings capability," said Rep. Bill Thomas, R-Calif. "It fits our needs today."