May 2, 1996
TO: PENSION COMMITTEE No. 15-96
RE: SENATOR KENNEDY BILL PROPOSES "INDIVIDUAL PENSION PLANS"
______________________________________________________________________________
Senator Kennedy (D. MA) has introduced S. 1668, the American Workers Economic
Security Act. Title II of the bill, called the Workers Pension Act of 1996, would mandate that
employers implement a payroll deduction mechanism to enable individual employees to
contribute to "individual pension plans." Any employee with earned income reportable as
wages would be eligible to establish such a plan and request an employer make payroll
deductions and transfer them to the individual pension plan. These contributions would be
tax-deductible in amounts up to the maximum dollar amount permitted for section 401(k) plans
offset by contributions to another retirement plan.
Under the proposal, employer responsibilities would be limited to (1) notifying
employees of their right to make payroll deductions for an individual pension plan, (2)
providing an explanation of how to establish such a plan, (3) providing information developed
by the U.S. Treasury on available qualifying institutions, investment options and institutional
performance data, and (4) making requested payroll deductions and remitting them to either
the individual pension plan of each employee or a "regional pension center." Employers would
not have ERISA fiduciary responsibilities.
The plans would be made available by qualifying institutions such as banks, insurance
companies, mutual funds, labor unions, Taft-Hartley plans or organizations responsible for
employer-sponsored pension funds. Qualifying institutions would have fiduciary duties under
ERISA, maintain a written plan document and have reporting and filing obligations. Under the
bill, the Secretary of the Treasury is directed to specify at least three standard plans that must
be made available by each qualifying institution, establish national standards and procedures
to be followed by employers, qualifying institutions and regional pension centers, establish
limits on charges and fees and license qualifying institutions.
A "regional pension center" is a specific organization with which the Treasury would
contract to serve as a clearing facility for a single region. These centers would receive payroll
deductions and forward them to qualifying institutions for deposit in individual pension plans,
thereby providing an employer with a single place to which it could remit payroll deductions.
- 2 -
The bill also provides for the establishment of "Supplementary Social Security Accounts"
by the Commissioner of Social Security. Such accounts would function like the individual
pension plans, except the assets would be invested in U.S. Treasury securities, and the Social
Security Administration would maintain the individual accounts.
The relevant portions of the bill are attached.
We will keep you informed of developments.
Russell G. Galer
Assistant Counsel - Pension
Attachments