A Funny Thing Happened on the Way to Retirement Plan Reform

Hopes were running high that Congress would finally pass retirement savings plan reform legislation in 2000. The House and Senate approved similar measures that would have increased investors' pre-tax contribution limits, and provided a catch-up provision for people over the age of 50. Congress intended to resolve minor differences between House and Senate versions after the November election, so the legislation could go into effect January 1, 2001.

Then a funny thing happened. Neither Bush nor Gore emerged victorious on November 7. As the nation endured five excruciating weeks of uncertainty involving court decisions and recounts, members of Congress decided to extend their pre-election recess an extra month. When they did reconvene, time was short, and uncertainty reigned. As a result, legislation was tabled until next year, when it is " virtually certain to be revived next as part of the new administration's tax proposals" (Employee Benefit Research Institute (EBRI) Washington Bulletin, December 15, 2000). But that's small consolation to people who planned to take advantage of the proposed provisions in 2001.

Although Congress failed to act in 2000, the Internal Revenue Service did make a change to its rules that can potentially benefit highly compensated individuals in 2001. Under the new rule the combination of employee and employer contributions to employer-sponsored retirement savings plans will be limited to the lesser of 25% of compensation or $35,000. This is up from the previous $30,000 limit. If Congress passes reform legislation next year, this limit may rise again.

Even though reform measures were not enacted this year, don't lose sight of the fact that your employer-sponsored plan encourages healthy and consistent saving habits. You still have an opportunity to move toward your goal of financial security in retirement by saving and using your plan to its current maximum potential.

This is a publication of Frank Russell Company. It should not be construed as investment, legal, or tax advice. The contents are intended for general information purposes only, and you are urged to consult your own investment, legal, or tax advisor concerning your own situation and any specific investment questions you may have. For further information about these contents, please contact Frank Russell Company. Frank Russell Company, a Washington, USA, corporation, operates through subsidiaries worldwide.

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