• Workers changing jobs would be allowed to roll eligible distributions between section 401(k) plans, section 403 arrangements, section 457 plans and IRAs. In addition, state and local government employees would be allowed to use funds from their defined contribution plans to purchase service credits in their defined benefit plans.
• Those distributions from a section 457 plan that are attributable to a large rollover (more than $50,000) from a plan other than a 457 plan would be subject to the section 72(t) 10% tax on premature distributions.
• The $130,000 dollar limit in section 415(b) would be increased to $140,000. Actuarial reduction of the section 415(b) dollar limit would be required only for benefit commencement prior to age 62. In the case of governmental plans and plans maintained by tax-exempt organizations, actuarial reductions would not reduce the limit below $100,000 (indexed) at age 55.
• The section 401(a)(17) limit on compensation would be increased to $235,000. Future indexing of this limit would be in $5,000 increments.
• The limit on elective deferrals to plans governed by section 402(g) (including section 401(k) plans and 403(b) arrangements) would be increased to $15,000.
• The limit on elective deferrals to eligible deferred compensation plans under section 457 would be increased to $15,000 (or $30,000 (indexed) in the 3 years prior to normal retirement age).
• The section 457 limit on deferred compensation would not be reduced by elective deferrals under other types of arrangements or by section 403(b) contributions. In addition, deferred compensation under a section 457 plan would not be taken into account for purposes of the section 403(b) catch-up rule.
• Individuals who are age 50 or older would be allowed to make an additional contribution of up to $5,000 per year to 401(k) plans, section 403(b) arrangements, 457 plans, or other salary reduction plans.
• The $30,000 dollar limit in section 415(c) would be increased to $45,000. Future indexing of this limit would be in $1,000 increments.
• The section 415(c) 25% of compensation limitation would be increased to 100%. The maximum exclusion allowance limit would be repealed (thus generally subjecting section 403(b) arrangements to the general 415(c) limit). The 33% of compensation limit of section 457(b) would be increased to 100% of compensation.
• The proposal would generally clarify the law regarding distributions from section 457 plans pursuant to qualified domestic relations orders by applying the same rules applicable to qualified plans and section 403(b) arrangements.
• The $5,000 limit for cash-outs of inactive accounts would be indexed for future inflation in $500 increments. In applying the $5,000 cash-out rule, the plan sponsor would no longer be required to look back to determine if an individual's account ever exceeded $5,000.
• Defined benefit plans would be permitted to use a valuation date up to one year prior to the beginning of the plan year. The change would apply at the election of the employer but would not be available to an underfunded plan.
• For tax-exempt organizations and State and local governments, the current rules would be amended to provide that section 415 and 401(a)(17) "mirror plans" (excess benefit plans) would be disregarded for purposes of section 457 limits.
• The Secretary of the Treasury would be directed to update the section 403(b) regulations to reflect the repeal of section 415(e).
• Pre-tax employee payments for parking (which were permitted by the Taxpayer Relief Act of 1997) would be allowed to be treated as compensation for purposes of the retirement plan rules.

Needed Communication with Congressional Offices!

While many NASRA members have indicated strong support for a number of these public pension simplification and portability provisions, numerous congressional offices have indicated that they have not heard from their public plans or participants on these issues. They urged plan administrators, industry representatives, and participants to contact their congressional delegations.