Social Security's Key Allies

While attention is focused on the need to reform Social Security to cope with the coming baby-boomer retirement surge, it's time for a look at two other crucial elements of retirees' well-being: pensions and savings.

Retired workers now receive some $380 billion a year in pension benefits - $63 billion more than they get from Social Security. About 19 percent of the average retiree's income comes from a pension, 18 percent from savings, 20 percent from earnings, and 40 percent from Social Security.

But those are averages. Only half of America's workers have a pension plan. Only 20 percent of small businesses, where the economy has grown the most, offer one. Studies show that older boomers have only about 40 percent of the savings they'll need to avoid a drop in living standards when they retire.

About 36 percent of workers now participate in employer-sponsored 401(k) retirement-savings plans. But there's been no growth in retirement coverage since 1980.

The nation's pension laws need some serious tweaking. A bipartisan bill sponsored by Reps. Rob Portman (R) of Ohio and Benjamin Cardin (D) of Maryland would update them, creating more incentives to save and making it easier for small businesses to create and administer pension plans. Among its many provisions, the bill would:

*Increase the contribution limits for 401(k), 403(b), and other retirement-savings plans, including repealing the current limit of 25 percent of an employee's pay, which will help some lower-income workers, especially women who are providing their families a second income.

*Allow workers age 50 and older an extra $5,000 yearly in "catch-up" contributions for years when they weren't employed or didn't contribute to their plan. This will especially help women who have returned to work after taking time off to raise families.

*Make pensions more portable for workers changing jobs by vesting matching contributions after three years instead of the current five. Workers would be able to move retirement savings between different types of plans and from a former employer's plan to a new employer's.

*Cut red tape to make it easier for small businesses to create pension plans, reducing Internal Revenue Service fees and fines and enabling more employee-only contribution plans.

*Create new "Roth" 401(k) and 403(b) plans in which employees contribute after-tax dollars, but the gain is tax free.

Two Senate bills contain many of the same provisions.

Enacting these kinds of reforms would spur savings, increase future benefits, and expand retirement security to many more workers. Congress should consider and pass pension reform this year, perhaps as part of a tax package.

And, fundamentally, individuals have a responsibility to save for their future. Most financial advisers agree: If your employer offers a matched-contribution retirement-savings plan, participate in it as fully as possible.

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