A Simple Fix For Pension Savings

Political battle lines are being drawn on how best to save Social Security. President Clinton wants to use the federal budget surplus. Conservatives want privatization. Liberals want to hike payroll taxes. Senator Daniel Patrick Moynihan (D-N.Y.) supports partly privatizing Social Security. Others believe higher economic growth will do the trick. But any consensus will take time to form. Meanwhile, Congress can do something right away to ease the retirement worries of millions of people working in the New Economy: simplify, and don't penalize mobility.

In a high-tech global economy, job loss and job creation go together. People shift jobs to different sectors all the time. Yet America's retirement-savings system is balkanized. There are 401(k)s for the private sector, 403(b)s for nonprofits, 457s for state- and local-government employees, Keoghs and Simplified Employee Pension Individual Retirement Accounts for the self-employed, and IRAs and Roth IRAs for those who qualify.

This results in a tangle of different rules, income limits, and restrictions. If you're a state trooper, you can't roll over a 457 into an IRA when you leave your job. But you can if you're a business manager with a 401(k). If a corporate lifer decides to change careers and teach at a university, the ex-exec's 401(k) pension can't be transferred into a 403(b). Married couples with an adjusted gross income of up to $150,000 can contribute as much as $2,000 to a Roth IRA. But to set up a traditional IRA, the income limit is $50,000 if they are covered by a retirement plan. Go figure.

Why not just let everyone save, tax-free, 15% of their income or $10,000, which is close to the maximum contribution for a 401(k) plan? Indeed, with budget surpluses soaring, why not let people save even more? It's time for Congress to streamline the retirement savings system to reflect the realities of the new economy. Do it now.

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