Portable Pension Bill Advanced by Rostenkowski : Taxation: Workers would be allowed to roll over all--instead of part--of their retirement money when they change jobs.

The ability of workers to carry their pensions with them when they change jobs would be dramatically increased under a bill introduced Monday by Rep. Dan Rostenkowski, the powerful chairman of the House Ways and Means Committee.

The “pension portability” legislation would change the tax laws to allow workers who are laid off or switch jobs in mid-career to roll over all of their pension distributions from their previous employers into individual retirement accounts or 401(k) company savings plans.

Currently, workers are allowed to roll over only half of their pensions into IRAs or other savings programs. They must take the other half in cash and immediately pay the taxes on that portion of their pension benefits.

The Bush Administration and Democratic leaders in the Senate have offered similar proposals. In May, in fact, Labor Secretary Lynn Martin held a press conference to outline a proposal that included many of the same provisions Rostenkowski’s bill contains.

But the fact that Rostenkowski, the chief tax writer in the House, now backs the idea is significant because he has previously said he was opposed to making major changes in the tax laws this year. And Rostenkowski’s Ways and Means Committee holds enormous sway over the direction of tax policy in Washington.

Rostenkowski has argued that last year’s budget and tax overhaul plans should be given time to work and that consumers and businesses should be given time to adjust to the new tax climate. At the same time, he has also warned Democrats who want to push for higher taxes on the rich to use “tax fairness” as an issue during the 1992 presidential campaign that they will leave themselves open to charges by the Bush Administration that they are still “tax and spend” Democrats who can’t adhere to Washington’s new budget discipline.

To downplay the fact that he was finally opening up the Tax Code once more, Rostenkowski termed Monday’s pension bill part of his campaign for “tax simplification.” But senior staffers of the House Ways and Means Committee acknowledged that the complex bill, which includes a wide number of other pension-related measures, would lead to higher revenues for the federal government during the next five years, and thus could be considered a form of tax hike. The staffers refused to say how much money would be raised by the legislation, however.

Pension portability has become an increasingly popular issue for Democrats and Republicans in recent years, as policy-makers seek ways to help salaried and blue-collar workers who have been laid off or forced into early retirement by corporate mergers and other cutbacks. With fewer workers staying at one company for an entire career, it has become increasingly difficult for them to accrue corporate retirement benefits.

Washington first dealt with the problem in the tax reform bill in 1986 when Congress reduced the time it takes for an employee to become vested in a private pension plan to five years. Congressional staffers said Monday that Rostenkowski’s legislation would mark the biggest advance in pension portability since the 1986 reform bill.

Rostenkowski’s bill would not increase the number of workers eligible to deduct IRA contributions from their income taxes. But it would sharply expand the number of workers eligible for company-provided retirement savings programs such as 401(k) plans. Under such plans, workers are allowed to place a portion of their pretax pay into retirement accounts before they are taxed; many companies also match those employee contributions.

Rostenkowski’s bill calls for tax changes to allow small businesses with fewer than 100 employees, tax-exempt organizations and state and local governments to offer such savings plans.