CHN: Pension Bill Makes Permanent The Saver’s Credit

After clearing the House, on August 3rd the Senate passed H.R. 4, legislation that overhauls the nation’s private pension system.  Central to the legislation is requiring companies to fully fund their pension plans and to shore up the finances of the federal agency that insures private pension plans, the Pension Benefit Guaranty Corporation (PBGC).

Included in H.R. 4 is a provision to make permanent the Saver’s Credit, a savings incentive for low-income workers.  The Credit provides a reduction in income taxes based on contributions to retirement savings of households earning less than $50,000 a year.  Regrettably, H.R. 4 did not make the credit refundable thus limiting its availability to only 5 million out of a possible 61 million households.  Making the credit refundable would have enabled households without a federal income tax liability to be eligible for matches to their retirement account.

Although taxpayers’ income limits will rise with inflation, there is no similar indexing of the credit amount, which will therefore lose value over time.  Unlike the unchanging Saver’s Credit, contribution limits for upper-income taxpayers to their retirement accounts were indexed for inflation in legislation enacted in 2001.  (For more information, see Center on Budget and Policy Priorities,

tax policy