White House Urges Pension Law Reform : Retirement: The plan would eliminate paperwork for small businesses, but would not force firms to offer pension systems.

The Bush Administration on Tuesday proposed overhauling the nation’s pension laws to eliminate much paperwork for small businesses and encourage them to set up retirement plans for workers.

As many as 42 million Americans who now have no pension plan could be helped by the changes, Labor Secretary Lynn Martin said.

However, most of the changes would merely be incentives to businesses, and no companies would be forced to create retirement systems.

Karen Ferguson, director of the private Pension Rights Center, said the Administration’s proposal “gives employers an easy out for not having a pension plan,” providing tax breaks to employees who can afford to save for retirement on their own but not pushing companies to contribute.

The Administration’s plan, affecting companies with 100 or fewer employees, would relax administrative requirements. For instance, small companies would no longer have to report non-discrimination compliance. In such reports, they assure that they are providing pension plans to all their employees--executives and janitors alike--though the sums of contributions can be different depending on the employees’ level.

To be eligible, the companies would have to make a base contribution of 2% of pay for all employees. Employees would be able to contribute additional amounts up to $4,200 on a pretax basis, and employers could match up to 50% of each employee’s contribution--but would not be required to do so.

David Ball, an assistant labor secretary for pensions, said the changes should motivate companies to set up retirement plans.

“This is paperless. There’s no work for them,” Ball said.

In addition, the Administration’s proposal would expand pension coverage by permitting tax exempt institutions and state and local governments to establish 401(k) retirement savings plans for their employees. In such plans, workers contribute their own pretax money to an account, and employers may or may not contribute as well.

The rules for 401(k) plans would also be simplified and made easier to administer, the Labor Department said.

Ferguson, who runs the private Pension Rights Center, said the small-business provision will allow companies to appear as though they have set up retirement plans without having to contribute much money.

For instance, if a worker made $20,000 a year, the company would only have to chip in $400, she said.

“All the yuppies who have enough money to save for themselves can then get tax breaks for up to $4,200,” Ferguson said.

Bush Administration officials “basically have this wonderful illusion that somehow, ordinary rank-and-file workers have this extra money that they can set aside for retirement,” Ferguson said.

She commended one part of the proposal that would require a shorter vesting period of five years for multi-employer pension plans, rather than forcing workers covered by those plans to hold a job for as long as 10 years before they are eligible.