VIEW FROM WASHINGTON / ROBERT A. ROSENBLATT : New Law Makes it Easier for Women to Save for Retirement

Women earn less than men, get smaller pensions and live a lot longer.

That is a prescription for penury in old age. It’s the reason many of the poorest among us are women 75 and older, 20% of whom struggle to survive with incomes below the federal poverty line of $7,309 a year.

They have outlived their spouses and, too often, their money.

The figures give special urgency to the message that women must take extra pains to save for retirement, no matter how little money they make today.

This is the financial gospel from Martha Priddy Patterson, head of employee benefits policy and analysis at KPMG Peat Marwick, and a frequent speaker at women’s seminars.

When audience members say they can’t afford to contribute a portion of their salary to a 401(k) plan, Patterson chastises them by saying, “You are throwing money away.”

“Do you have cable television, for which you pay $30 or $40 or $50 a month?” she asks the audience. “You have made a choice there not to save that money for your retirement.”

Women are much more likely than men to work in the service industries, where pensions are scarcer. The minimum wage bill just signed by President Clinton has several pension provisions that are particularly beneficial to women, giving them improved opportunities to do the kind of saving Patterson is calling for.

A new, simplified version of the popular 401(k) defined-contribution pension plans should encourage small companies--those with fewer than 100 workers--to create pension programs for the first time.

*

Under the 401(k) plans, workers contribute up to $9,500 of their annual salary to a tax-exempt investment account; their employers have the option of matching all or part of that, up to 15% of the worker’s salary. But complex rules have long deterred many small firms from operating 401(k) programs.

The new law would let employees of companies with 100 or fewer workers contribute up to $6,000 a year to new “simple” 401(k) accounts. The company would be required to match the worker contribution dollar for dollar, up to 3% of the salary. As an alternative, a business could create retirement accounts with 2% of every worker’s salary, regardless of whether the worker makes any contribution.

*

The law also makes it easy for nonprofit organizations--including charities, museums, civic and community organizations--to create 401(k) plans. Since two-thirds of the workers at nonprofit groups are women, the law could give millions of women new savings opportunities.

The minimum wage law also creates an expanded individual retirement account that gives added fiscal benefits to homemaker-spouses. Current law says eligible families with one wage earner can place up to $2,250 a year in an IRA, including $250 allowed for the nonworking spouse. The new limit will be $4,000, ending the discrimination between those with a salaried job and those, usually women, who are caring for the family at home.

At family-owned businesses, the law short-changed women by limiting the amount of retirement savings a couple working together could accumulate, according to the Labor Department.

“In some circumstances, a woman working in a business owned by her husband is prohibited from getting any pension,” the Labor Department said. The new law “allows all family members to earn their own retirement benefits,” the department noted. (A free booklet, “What Women Need to Know and Do to Save for Retirement,” is available from Women and Pensions, Labor Department, Washington, DC 20210.)

One provision of the new law could be particularly helpful for women whose marriages have broken up. As part of a divorce or legal-separation agreement, a spouse may be able to negotiate rights to a portion of the other spouse’s pension benefit. This settlement is available with a “qualified domestic relations order” (QDRO) issued by a divorce court.

The new law calls for the Internal Revenue Service to develop sample language for QDROs by next year, a step that would simplify and standardize these documents.

All these measures will provide some help toward a more secure retirement for women, who can expect to live 19 years in retirement, four years longer than men.

For retirees over the age of 55, more than half the men get private pensions, compared with less than a third of women.

Among those women who do get pensions, the average benefit is half that received by men.

Although the financial differences will be a reality far into the future, women are making progress in closing the gap. The earnings differential, with women earning 76 cents for every $1 earned by men, is likely to narrow in coming years.

“There is no question I will be a lot better off than my mother, who worked her whole adult life and left the work force with no benefits,” said Patterson. “Hopefully, the young women who come behind me will do better than I will.”

*

Meanwhile, she tells women to take advantage of changes in the law and amass funds for retirement.

“Women should be extraordinarily early and intense savers, and stick with it.” Because of the power of compound interest, a dollar invested at 8% a year doubles in value in just over nine years.

The $500 or $600 a year saved by doing without cable television, Patterson tells her audiences, “won’t let you retire in the south of France. But it will give you an extra cushion when you retire.”