ENSURING THAT EVERY WORKER HAS A SAFE RETIREMENT SECURITY NEST EGG

By Rob Portman

As a result of recent corporate collapses, many workers have been left with near-worthless retirement savings accounts. To help prevent this from happening in the future, Congress needs to take action to give workers more diversification rights and better access to retirement savings advice.

To help strengthen retirement savings accounts and empower workers, the House of Representatives passed a Pension Security Act back in April based on legislation I introduced. The legislation takes pro-active steps to see that what happened to the workers at Enron and other bankrupt corporations will not happen again.

With over 42 million Americans now participating in 401(k) retirement plans, the need to ensure pension security is clear. Under 401(k) plans, workers can make a pre-tax contribution from their paycheck that builds up tax-free in their own account. In many cases, the employer then contributes a matching amount to the same 401(k) account. These matching contributions are sometimes made with company stock which can be restricted. For instance, at Enron, workers were barred from selling this stock until they reached the age of 50. Consequently, most Enron workers were unable to sell their matching stock in their 401(k) account even as the price of Enron stock was dropping precipitously. They were stuck with it.

The Pension Security Act would create important new diversification rights for workers. First, it would not allow companies to force employees to hold matching company stock in a 401(k) plan over a long period of time. Instead, it would allow workers to sell their matching stock once they had vested (after three years of service with their company) or three years after they receive the stock in their 401(k) plan. Second, it would forbid companies from forcing workers to invest any of their own 401(k) contributions into the stock of the employer. These important changes in the law give workers the choice to make smart decisions for themselves, a key to retirement security.

Along with choice, there is a need for access to more accurate information and sound investment advice. The Pension Security Act also helps on both these fronts. The legislation requires companies to provide 401(k) plan participants with quarterly benefit statements. In addition to providing the participant with important information on the value of their accounts, these statements would also include an explanation of generally accepted investment principles (including the need for diversification), and a list of the worker's diversification rights.

Finally, to give workers better access to investment advice -- another key to real retirement security -- the Pension Security Act would create a new tax incentive I authored to help workers pay for the costs of retirement planning services. For the first time, workers would be able to use a pre-tax payroll deduction to help pay for retirement savings advice and counseling. This legislation would also make it easier for employers to make investment advice available to their employees, provided the advice came from qualified financial advisors who disclose all fees and potential conflicts of interests, and act solely in the interests of the workers they advise.

President Bush has supported this legislation and called on Congress to send it to him for his signature. But his plea has fallen on deaf ears in the Senate. While the House has passed the Pension Security Act, the Senate has yet to vote on any pension security legislation. The time for talk on this issue is over, and the time has come for action. I hope the Senate will soon join the House in making sure that American workers get the retirement security they deserve.