When a member of Congress introduces a bill that weighs more than a stack of best-sellers, do the politicians read it?
For one particularly unwieldy slab of legislation, the answer doesn't matter because it's a done deal. Last month, Congress passed the Pension Protection Act of 2006, which supporters called the most sweeping pension reform in 30 years.
One of the chief goals of the bill was to discourage corporations from boxing up their pension obligations and tossing them into the trash. Unfortunately, corporations have proved to be more efficient housecleaners than Heloise. Back in the mid-1980s, corporations sponsored 112,000 pension plans, but by 2004 that number had shriveled to fewer than 30,000. At this point, whether the new law persuades companies to play nice with their employees or backfires is something pundits are furiously debating.
But taking even a cursory look at the legislation - which is probably more than most of the politicians did - indicates that Congress has hedged its bets. The act creates new reporting and funding requirements for companies that continue to maintain pension plans. But at the same time, the sponsors stuffed the bill with all sorts of provisions that they hope will prod workers into saving more of their own cash for retirement. That way, if the life raft sinks, workers will at least be able to cling to their own life preservers.
One practical effect of the law is that savings dynamos can't accuse the government of being obstructionist. Contribution ceilings for retirement accounts still exist, but they are so high - think vaulted ceilings - that most investors will never bang their heads on them.
What the pension act specifically did was extend the graduated saving tables that Congress passed a few years ago. If you're at least 50 years old, for instance, you can stuff a total of $25,000 between an Individual Retirement Account and a 401(k) in 2006. A working couple could theoretically save double that amount. Younger investors who invest through both types of plans could squirrel away $19,000 a year.
The government's generosity hardly stops there. This week and next, I'll share some of the other features of Congress' largesse.
AUTO PILOT SAVINGS - You can make 401(k)s as attractive as possible, but millions of workers still won't devote the 10 minutes it probably will take to enroll. Up against that grim reality, the pension act's authors hope to trick slothful noninvestors into saving. The act gives companies its official blessing to enroll these procrastinators into 401(k) plans without their permission.