Reforming Retirement Pay For Stay-at-Home Spouses

A family-friendly Congress moves to ease pension gap between men and women

Congress is studying ways to make the pension system fairer to those - mostly women - who stay at home to raise families or who interrupt their careers to care for children and then return.

Lawmakers' efforts reflect a growing interest by both parties in appealing to families. But underneath the politics of the issue, many analysts agree America has a serious pension gap.

* Fewer than one-third of retired women get pension benefits, compared with 56 percent of men.

* Of women who do receive pensions, their average benefit is half that of men.

* Twelve million women work for small firms that don't offer pensions.

As a result, retired women are almost twice as likely as men to be poor, according to the Census Bureau. "Of the 63 million baby boomers in America, a full 32 million of them are saving less than one-third of what they will need for retirement," says Sen. William Roth Jr. (R) of Delaware, chairman of the Senate Finance Committee. "It concerns me ... that the overwhelming majority of these Americans unprepared for retirement are women."

"It is the women in our country who have been penalized, because they are the ones who go in and out of the work force," says Sen. Kay Bailey Hutchison (R) of Texas.

Republicans and Democrats have each offered a package of proposals aimed helping more Americans - especially women - better prepare for retirement. But pension reform will almost certainly be considered in the context of any budget-balancing agreement. Moreover, because both packages would have the net effect of reducing federal revenues, they would be considered alongside dozens of other potential tax-cutting ideas, such as a $500-per-child tax credit, a cut in the capital gains tax, and a tuition tax credit.

Lawmakers last year took a first step toward improving women's retirement position by approving the Homemaker IRA. That law allows homemaking spouses to make equal, tax-deductible contributions to individual retirement accounts (IRAs) at the same rate as wage-earning spouses - $2,000 per year. But it allows both spouses to deposit $2,000 only if neither has an employer pension or if they have a combined adjusted gross income of less than $40,000.

The new Republican proposal, the Women's Investment and Savings Equity Act, would end some of those eligibility restrictions on IRAs. Even if a spouse takes part in an employer pension plan, the other partner - whether a homemaker or a worker without an employer pension - could pay up to $2,000 yearly into an IRA and get a tax deduction.

The GOP plan would also allow parents who take unpaid maternity or paternity leave and then return to work to make additional contributions to their employer pension plan or 401(k) plan to "catch up" for the time they were away. Moreover, it would allow parents who go back to work after taking several years off to care for children, or who are beginning to work outside the home for the first time after caring for children, to make up the contributions to a pension plan that they could have made had they been working. The make-up period under this last provision would be limited to 18 years.

The GOP plan has 16 cosponsors, including Senate majority leader Trent Lott of Mississippi and majority whip Don Nickles of Oklahoma. Republicans are expected to unveil additional measures soon.

About 60 House Democrats, led by Rep. Sam Gejdenson of Connecticut, are pushing their own version of pension reform. A number of the provisions would benefit women and homemakers, such as allowing a spouse to contribute to an IRA regardless of the other spouse's pension status. The income limit for deductible IRAs would double to $100,000 for joint filers and $70,000 for single filers.

Under the Democrats' plan, employers would have to offer a new option in their worker pension plans. While many plans now cut the benefit in half if the worker spouse dies, the reform could allow the surviving spouse to receive up to two-thirds of the full benefit.

Other provisions would allow divorced couples to share equally in each other's pension benefits unless otherwise agreed under court order.

The Democrats' bill addresses a broad range of other pension issues: reducing vesting from five to three years; prohibiting employers from investing more than 10 percent of employees' 401(k) plans in company stock; and providing for early withdrawal from IRAs without penalty for college education or training, first-time purchase of a house, or major emergency medical costs.

"Our bill is a comprehensive improvement of our pension laws," Mr. Gejdenson says. "We increase portability, flexibility, and access to millions of Americans. We make the pension system more equitable for women."

"I think that both bills, with the exception of one or two issues, are in the right direction," says George Taylor of the American Society of Pension Actuaries and president of National Retirement Plan Services in State College, Pa. "The expansion of IRAs to allow additional savings is good. Obviously, whenever we encourage savings for retirement, it's good."

But neither proposal, he adds, addresses the need to provide incentives for small businesses to offer pension plans. More than 80 percent of businesses with fewer than 20 employees do not offer pension plans, he says.

Mr. Taylor lauds the Democratic proposal to limit the amount of 401(k) investment in company stock: "We can't oppose a provision that would better protect employees' investments."


Senate Republicans

* Ending some current restrictions, spouses - regardless of whether their partner has a pension plan - would be allowed to pay up to $2,000 a year into an IRA.

* Parents who take unpaid maternity or paternity leave could add to their pension plan or 401(k) to make up for time away.

* Parents entering the work force for the first time could make extra contributions to a pension or 401(k) plan to make up for the time they were parenting.

House Democrats

* Regardless of whether a spouse has a pension plan, the partner could put up to $2,000 a year in an IRA, as provided in the GOP plan. Income limits for tax-deductible IRAs would double to $100,000 for joint filers, $70,000 for single filers.

* Employers would have to offer pension plans that allow workers to choose whether a surviving spouse gets up to two-thirds of full benefits.

* Divorced spouses would share pension benefits equally unless otherwise agreed.

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