WASHINGTON Bill would let retirees wait longer to draw money
The bill would expand a tax credit on retirement contributions.
WASHINGTON (AP) -- Retirees are living longer, and a proposal under consideration by a House committee could allow them to wait longer to draw money from their retirement accounts.
The new formula is part of a broader bill designed to encourage individuals to save more for retirement, under consideration Friday in the House Ways and Means Committee. It would cost roughly $50 billion through the coming decade.
Bill sponsors Rob Portman, R-Ohio and Rep. Benjamin Cardin, D-Md., want to boost the age at which individuals must start withdrawing money from their retirement accounts from 701/2 to 75.
The current age was set in 1962, and they hope to update it to reflect the longer life expectancy of retirees.
Tax-credit expansion
The bill would also expand a tax credit designed to encourage savings in low-income households and speed already planned increases on retirement account contribution limits. Individuals would be allowed to put up to $5,000 in their individual retirement accounts and up to $15,000 in their 401(k) accounts each year beginning in 2004.
Lawmakers will also consider changing the way companies measure their future obligations to retired workers under the 32,000 traditional pension plans offered by private employers.
A change in calculations for traditional, defined benefit pension plans would replace the 30-year Treasury bond as the basis for calculating defined benefit obligations. The government stopped issuing new 30-year bonds in 2001, and a temporary measure that simulates the 30-year bond rate will expire at the end of this year.
Portman and Cardin want to replace the 30-year rate with a long-term corporate bond rate to measure pension liability for three years, while the Congress and the Treasury Department collaborate on a permanent solution.
"The way we are doing it is a responsible approach to the current economic situation," Portman said.
Ignores proposal
The bill ignores a Treasury Department proposal that would have used high-quality corporate bonds to measure pension liabilities for two years, followed by a formula that takes into account the demographics of a company's work force.
That formula drew criticism from businesses and workers worried that it will introduce too much volatility in pension plan funding and discourage companies from establishing or continuing pension benefits.
Many traditional pensions currently face funding shortfalls. More than half of employer-sponsored plans are underfunded by a total of $300 billion, the Pension Benefit Guaranty Corp. told Congress in April. The Pension Benefit Guaranty Corp. insures the plans and assumes some of the obligations of failed plans.