House Panel Backs Bigger Retirement Contributions

The House Ways and Means Committee Wednesday voted to allow bigger contributions to tax-favored retirement savings accounts and to simplify pension laws to encourage more small businesses to offer employees retirement plans.

The bill, overwhelmingly approved by the committee on a vote of 35 to 6, raises the maximum annual contribution allowed for individual retirement accounts to $5,000 from $2,000.

The change would take place over three years starting next year when a maximum contribution of $3,000 would be allowed. The maximum would rise to $4,000 in 2003 and $5,000 in 2004 and adjust for inflation thereafter.

To help older workers “catch up” on their retirement savings, the legislation would immediately raise the limit to $5,000 for taxpayers age 50 and older.

Maximum contributions to 401(k) and other employer-sponsored retirement accounts would rise to $15,000, from $10,500 currently, under the bill. Workers would also vest employer matching contributions sooner, reducing the time to three years from five years.

The bill, which would lower federal revenue by about $52 billion over 10 years, would also simplify some pension rules to encourage small-business owners to offer retirement plans to employees.

“The need to reform our nation’s pension laws is great,” said Rep. Rob Portman (R-Ohio), who sponsored the legislation along with Rep. Benjamin L. Cardin (D-Md.). “There are 76 million baby boomers who are nearing retirement even as our nation’s personal saving rate is negative. Half of all American workers--more than 70 million people--have no pension plan at all.”

The bill is expected to win easy approval in the full House. Similar legislation passed the House last year by an overwhelming 401-25 vote but died in the Senate.

The Senate, divided 50-50 between Republicans and Democrats, is currently embroiled in a battle over the size of President Bush’s tax package. But it will also likely take up the retirement saving measures this year.

Senate Finance Chairman Charles E. Grassley, an Iowa Republican, and ranking committee Democrat Sen. Max Baucus of Montana are backing a broader retirement saving package.