NASRA Federal Alerts, Letters and Updates

6-14-01 Alert: Public Law Numbers Issued, Treasury Regulation/Guidance Process Underway, Fallen Hero Survivors Bill

6-6-01 NASRA Alert:   Americans for Tax Reform Target Public Pensions

6-6-01 NASRA Alert: Bill Signing Tomorrow!!! Summary of Public Provisions Attached

5-26-01 NASRA Alert: Tax Bill Passes House and Senate Public Sector Provisions Will Finally be Enacted!!

Letter from centrist Senators regarding what should stay in the tax reconciliation bill, including pensions

5-23-01 NASRA Alert: Pension Provisions Pass Senate in Tax Reconciliation Bill!!

5-16-01 NASRA Alert: PENSION PROVISIONS RETAINED IN FINANCE COMITTEEE-PASSED TAX RECONCILIAION BILL, FALLEN HERO SURVIVORS BILL PASSES HOUSE

5-14-01 NASRA Alert: Pension Provisions Included in Tax Reconciliation Bill--Though Some Senators May Aim to Pull Provisions in Committee

Summary of (Major) Public Pension Provisions in the Senate Finance Committee Chairman's Mark of the "Restoring Earnings to Lift Individuals and Empower Families Act of 2001"

5-4-01 NASRA Alert: Senate Finance Chairman Grassley (R-IA) and Ranking Member Baucus (D-MT) May Include Pensions in Tax Reconciliation Bill

5-4-01 Letter to Senator Lott and other Senators from NASRA and other National Public Sector Organizations

5-3-01 NASRA Alert: Portman-Cardin Passes with 407 Votes; Moynihan to Co-Chair Presidential Social Security Commission; GAO to Study State Use of Social Security Numbers

5-1-01 Letter to Speaker Hastert and Minority Leader Gephardt from NASRA and 27 other Public Sector Organizations

4-27-01 Alert:  Update on House and Senate Pension Legislation

4-24-01 NASRA, NEA, AFSCME, NCSL Letter to Senator Bingaman Regarding Teacher Pension Portability

NASRA Letter in Support of the Grassley-Baucus Retirement Security and Savings Act of 2001 (S. 742)

4-10-01 NASRA Alert: Grassley-Baucus Pension Bill Sponsors

4-5-01 NASRA Alert: Senate Staff Summary of Senate Pension Bill

4-4-01 NASRA Alert:  Senate Bill to be Introduced Tomorrow

3-23-01 Federal Legislative Update

3-14-01 NASRA Press Release and Testimony on H.R. 10 (Porman-Cardin), The Comprehensive Retirement and Pension Portability Act

3-14-01 NASRA Alert:   Portman-Cardin Bill Introduced Today!

3-14-01 Alert: PassPensionReform.org--Online Signiture Campaign Underway!

3-6-01 NASRA Alert:  Portman/Cardin Bill to be Introduced March 14^th, BANKRUPTCY BILL WILL ASSIST WITH CONFLICTING CASE LAW REGARDING 457 ASSETS

2-28-01 NASRA Alert: Bush's Tax, Medicare and Social Security Proposals; Status of House and Senate Pension Bills, Banruptcy Bill

PENSION TAX PROVISIONS SIGNED INTO LAW

The many NASRA-supported federal pension tax provisions were passed by Congress as part of H.R. 1836 (The Economic Growth And Tax Relief Reconciliation Act of 2001) on May 26, 2001, and signed into law by President Bush on June 7, 2001 (P.L, 107-16). NASRA and other public pension advocates worked for many years to see these numerous and very important public sector retirement provisions enacted. While the proposals had passed the House and Senate on several occasions, they were in larger legislative packages that were never reconciled between the two chambers or were eventually vetoed by the former Administration. Thus, NASRA’s president, Jerry Fox (WY), and director of federal relations, Jeannine Markoe Raymond, were honored to receive an invitation to the White House to attend the official signing ceremony on behalf of NASRA.

The following link is to a summary of the pension and benefit provisions in H.R. 1836 that would apply to governmental plans and employees: http://www.sso.org/nasra/HR1836PublicPensionSummary.pdf

REGULATORY PROCESS UNDERWAY FOR NEW PENSION TAX LAW

NASRA and other pension advocates have already begun meeting with officials from the Treasury Department and the IRS to discuss plan amendment and/or guidance issues surrounding the many pension tax proposals contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (H.R. 1836, now P.L.107-16). Department and Service officials were interested in which proposals in the new law were considered self-enacting, which would require plan amendments, and which would necessitate Treasury guidance. While the meeting only provided for a brief airing of issues, it seems there might be some differing interpretations, even within the public sector, on these questions. Although, most provisions are being interpreted similarly. It is hoped that we may begin the process of determining whether some consensus exists, or can be reached, particularly on those issues we believe do NOT need Treasury guidance. Those interested in participating in this process, please contact NASRA’s director of federal relations, Jeannine Markoe Raymond, at mailto:jeannine@nasra.org or 202-624-1417.

FALLEN HERO BILL

The Fallen Hero Survivor Benefits Fairness Act of 2001 (HR 1727) was signed into law on June 5, 2001, and would extend favorable tax treatment to annuities of survivors of public safety officers killed in the line of duty on or before December 31, 1996. The Public Law number is P.L. 107-15.

From: Jeannine Markoe Raymond
Sent: Wednesday, June 06, 2001 11:46 PM
To: NASRA Member Directors
Subject: FW: Article About Grover Norquist in the Nation

Attached is an interesting article Gary Findlay forwarded from The Nation entitled "Grover Norquist: 'Field Marshal' of the Bush Plan." Please note the last paragraph regarding Mr. Norquist's next potential target:

"Still others can be won piecemeal, and right away. Asked to name one that might emerge as his next battleground, he pauses. Well, he says, there's the matter of all those state and local pension plans. State by state, he's planning to launch a campaign to dismantle and privatize state pension plans and their trillions of dollars of public funds held as investments for retirees. 'Just 115 people control $1 trillion in these funds,' he says. 'We want to take that power and destroy it.'"

Click here to go to Article

To:     NASRA Member Directors

From: Jeannine Markoe Raymond

Date: June 6, 2001

As many of you may be aware, the many NASRA-supported public pension provisions contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (H.R. 1836) will be signed into law by President Bush tomorrow morning. Jerry Fox (NASRA President) and I were honored to receive an invitation to the White House to attend the official signing ceremony on behalf of NASRA.

I have received numerous calls over the past week from congressional staff thanking NASRA for its assistance in including the pension provisions in the final legislation. Many stated that the pension package would likely not have been retained in the final tax bill without the support and persistence of the public pension community. As this bill will likely be the last piece of tax legislation this year, and possibly this Congress (given its size and the recent shake-up in the Senate), retaining the provisions in this legislative vehicle was crucial. Thank you again for all your efforts!!

 Attached is a summary of the pension and benefit provisions in H.R. 1836 that would apply to governmental plans and employees. Many thanks to Rod Crane (The Segal Company), Tom Cavanaugh (Buck Consultants) and Paul Zorn (Gabriel Roeder Smith) for their assistance in reviewing the final legislation and summarizing the applicable provisions.

The summary is also posted at: http://www.sso.org/nasra/HR1836PublicPensionSummary.pdf

To: NASRA Member Directors

From: Jeannine Markoe Raymond

Date: May 26, 2001

As you know, H.R. 1836 (The Economic Growth And Tax Relief Reconciliation Act Of 2001) was passed by the House on Saturday morning, May 26, and then by the Senate that same afternoon. Nearly all of the NASRA-supported pension provisions seem to have been retained in the final bill. Congratulations again to everyone and thank you for all your assistance in getting these important provisions passed!!

Listed below are descriptions of pension provisions retained in the conference agreement on H.R. 1836. These were listed in the Joint Committee on Taxation’s estimated budget effects of the conference agreement for the final bill, and are only brief summaries of the provisions. (I’ll send our more detailed information when the legislative language is made available, hopefully after the holiday weekend). I’ve primarily included only those items that would apply to public sector plans and employees. Please note that most provisions generally sunset after 12/31/10 for accounting purposes.

• Modification of IRA Contribution Limits - increase the maximum contribution limit for traditional and Roth IRAs to: $3,000 in 2002 through 2004, $4,000 in 2005 through 2007, and $5,000 in 2008; index in years thereafter
• IRA Catch- Up Contributions - increase maximum contribution limits for traditional and Roth IRAs for individuals age 50 and above by $500 in 2002 and $1,000 in 2006
• Deemed IRAs under employee plans – [while there is no further description in the JCT report, this provision would allow governmental 457 and 403(b) to offer an IRA through the employer plan] effective years beginning after 12/31/02

• Increase contribution and benefit limits:

- Increase limitation on exclusion for elective deferrals to: $11,000 in 2002, $12,000 in 2003, $13,000 in 2004, $14,000 in 2005, and $15,000 in 2006; index thereafter

- Increase defined benefit dollar limit to $160,000 effective years beginning after 12/ 31/ 01

- Increase annual addition limitation for defined contribution plans to $40,000 with indexing in $1,000 increments, effective years beginning after 12/ 31/ 01

- Increase qualified plan compensation limit to $200,000 with indexing in $5,000 increments and expand availability of qualified plans to self- employed individuals who are exempt from the self- employment tax by reason of their religious beliefs, effective years beginning after 12/ 31/ 01

- Increase limits on deferrals under deferred compensation plans of State and local governments [457 plans] and tax- exempt organizations to: $11,000 in 2002, $12,000 in 2003, $13,000 in 2004, $14,000 in 2005, and $15,000 in 2006; index thereafter, effective years beginning after 12/ 31/ 01

• Repeal of coordination requirements for deferred compensation plans of State and local governments and tax- exempt organizations, effective years beginning after 12/ 31/ 01
• Option to treat elective deferrals as after- tax Roth contributions – [would apply to 401(k) and 403(b) plans] effective years beginning after 12/31/05
• Nonrefundable credit to certain individuals [depending on AGI] for elective deferrals and IRA contributions (sunset 12/31/06)

• Additional catch- up contributions for individuals age 50 and above - increase the otherwise applicable contribution limit for all plans other than SIMPLE by $1,000 in 2002, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005, and $5,000 in 2006 and thereafter; index in $500 increments after 2006; SIMPLE plan catch- ups would be 50% of that applicable to other plans; (nondiscrimination rules would not apply)
• Equitable treatment for contributions of employees to defined contribution plans, effective years beginning after 12/31/01 [it is unclear whether the MEA provision would also be repealed beginning after 12/31/01. We were working to change a delayed effective date that was added during Senate Finance Committee consideration of the measure].
• Increase qualified plan compensation limit to $200,000 with indexing in $5,000 increments, effective years beginning after 12/ 31/ 01
• Simplify and update the minimum distribution rules by modifying post- death distribution rules, effective years beginning after 12/ 31/ 01
• Clarification of tax treatment of division of section 457 plan benefits upon divorce [457 DROs], effective for transfers, distributions, and payments made after 12/31/01
• Modification of safe harbor relief for hardship withdrawals from 401( k) plans, effective years beginning after 12/ 31/ 01

• Rollovers allowed among governmental section 457 plans, section 403( b) plans, and qualified plans, effective for distributions after 12/31/01
• Rollovers of IRAs to workplace retirement plans, effective for distributions after 12/31/01
• Rollovers of after- tax retirement plan contributions, effective for distributions made after 12/31/01
• Waiver of 60- day rule, effective for distributions after 12/31/01
• Purchase of service credit in governmental defined benefit plans, effective for transfers after 12/31/01
• Employers may disregard rollovers for cash- out amounts, effective for distributions after 12/31/01
• Minimum distribution and inclusion requirements for section 457 plans [flexibility for 457 distribution options], effective for distributions after 12/31/01

• Automatic rollovers of certain mandatory distributions, effective for distributions after federal regulations are prescribed
• .

From: Jeannine Markoe Raymond
Sent: Wednesday, May 23, 2001
To: NASRA Member Directors
Subject: Pension Provisions Pass Senate in Tax Reconciliation Bill!!

This afternoon, the Senate approved its $1.35 trillion tax reconciliation package, retaining the many long-sought NASRA-supported public pension provisions (See 5-14-01 NASRA Alert for a summary of the provisions).  The 62 to 38 vote came after the Senate had been snared for three days working through dozens of amendments offered by Democrats wishing to signal their disgust with the haste with which the tax bill was being pushed through Congress. The vote also followed widespread reports that Sen. James Jeffords (R-VT) could soon leave the Republican Party, tipping control of the evenly divided Senate to the Democrats.

PENSION PROVISIONS PASS OUT OF SENATE FINANCE COMMITTEE IN TAX RECONCILIAION MEASURE

At nearly 9:00 pm last night, the Senate Finance Committee approved on a 13-5 vote a $1.35 trillion 11-year bipartisan tax cut plan. The measure retained the many NASRA-supported public pension provisions. As mentioned in earlier alerts, many effective dates have been delayed in order to get the proposal to fit within the budget parameters. Although, per NASRA’s request, those public pension items without a significant revenue impact were left effective on the first of the year, including purchase of service credits, portability of plan assets, and flexibility in 457 distributions. It seems only one modification was made to the public pension provisions released in the original Chairman’s Mark (See 4-14-01 NASRA Alert), which provides that the proposal to repeal the exclusion allowance applicable to contributions to tax-sheltered annuities and subject such annuities to the limits applicable to tax-qualified plans would be effective for plan years beginning after December 31, 2010. While a host of amendments (nearly 200) were filed and offered during the committee mark-up of the bill, nearly all were defeated, some with specific direction that the amendment may be more appropriately offered during floor consideration. The measure is currently scheduled to go to the Senate floor tomorrow. Senators seeking to add amendments, including those to further lower tax rates or provide a permanent extension of the R&D credit, will be looking for ways in which to fit their proposals under the $1.35 trillion budget agreement number. Thus, pension proposals may still be vulnerable. Thanks to everyone for your continued contact with Senate offices. If you have not written or called your Senate offices to urge their support for retaining the public pension proposals in the tax reconciliation bill, I would urge you to do so today, if at all possible. (Capitol Switchboard 202-224-3121).

HOUSE PASSES TAX BILL ON SURVIVORS OF FALLEN PUBLIC SAFETY OFFICERS

Yesterday, the House passed The Fallen Hero Survivor Benefits Fairness Act of 2001 on a unanimous 419-0 vote. The measure would extend favorable tax treatment of annuities to survivors of public safety officers killed in the line of duty on or before Dec. 31, 1996 (H.R. 1727), and was fittingly considered during National Police Week (honoring police officers killed in the line of duty). The measure was approved unanimously by the House Ways and Means Committee on May 9 and was brought up under suspension of the rules, meaning they needed a two-thirds vote to pass and no amendments were allowed.

To:       NASRA Members Directors

From: Jeannine Markoe Raymond

Date: May 14, 2001

Pension Provisions Included in Tax Reconciliation Bill--Though Some Senators May Aim to Pull Provisions in Committee

A modified version of S. 742, the Grassley-Baucus Senate pension package, was included in the Chairman's Mark on the tax reconciliation bill. This package is scheduled to go before the Senate Finance Committee tomorrow morning. Unfortunately, there is still some resistance to including the pension items in the tax reconciliation bill, as they are seen as reducing the revenues available for the President's tax priorities, particularly the marginal rate cuts. Many offices would rather have them move separately, promising to pass the pension provisions in a stand-alone package or in a second tax bill. However, even the sponsors of the pension package can't guarantee they would vote for any more tax legislation this year after passing a $1.35+ Trillion tax reconciliation package. In addition, the press is already reporting how all the business interests are currently circling the minimum wage bill and plan to load it up with corporate tax provisions. We are much better served being in the tax reconciliation bill, as it already looks like the next vehicle is going to be a knock-down-drag-out process that will likely lead nowhere.

I urge those of you with members on the Finance Committee (Grassley, IA ; Hatch, UT; Frank Murkowski, AK; Nickles, OK; Gramm, TX; Lott, MS; Jeffords, VT; Thompson, TN; Snowe, ME; Jon Kyl, AZ ; Baucus, MT; Rockefeller, WV; Daschle, SD; Breaux, LA; Conrad, ND; Graham, FL; Bingaman, NM; Kerry, MA ; Torricelli, NJ; and Lincoln, AR) to call your Senators today and urge their support for the retention of the public pension measures in the bill. Offices can be reached through the Capitol Switchboard (202-224-3121). Those particularly indicating reluctance to include pension measures are Lott, Nickles, Kyl and Gramm.

As expected, many modifications were made to pension provision effective dates in order to bring down the cost and get the package included in the reconciliation measure. Below is a summary of the major provisions affecting public pension plans that were included in the Chairman's Mark:

Portability of Pension Assets---Would allow rollovers of retirement assets between all plans when employees switch jobs, including 403(b) and governmental 457 plans. Effective for distributions made after December 31, 2001.

Purchase of Service Credit--Would permit assets held in 457 and 403(b) plans to be used to purchase permissive service credits or for the repayment of refunds in public sector defined benefit plans. Effective for transfers after December 31, 2001.

State And Local Government 457 Plan Flexibility--Greater flexibility in 457 plan distributions would be provided, including further flexibility in determining the date of first distribution and allowing beneficiaries to change their distribution amount and/or pattern once it has begun, similar to other salary reduction Effective for distributions after December 31, 2001.arrangements.

Equitable Treatment of 457 Benefits Upon Divorce--Would provide Section 457 plan distributions made pursuant to a domestic relations order the same tax treatment as similar distributions from qualified governmental plans. In addition, a section 457 plan would not be treated as violating the restrictions on distributions from such plans due to payments to an alternate payee under a domestic relations order. Effective for transfers, distributions, and payments made after December 31, 2001. The proposals relating to the waiver of restrictions on distributions and the application of the special rule for determining whether a distribution is pursuant to a domestic relations order would be effective on January 1, 2002, except that in the case of a domestic relations order entered before January 1, 2002, the plan administrator (1) would be required to treat such order as a domestic relations order if the administrator is paying benefits pursuant to such order on January 1, 2002, and (2) would be permitted to treat any other such order entered before January 1, 2002, as a domestic relations order even if such order does not meet the relevant requirements of the proposal.

Restoration of Defined Benefit Dollar Limits--The defined benefit dollar limit would be increased to $150,000 for 2002 through 2004 and to $160,000 for 2005 and thereafter. The dollar limit would be reduced for benefit commencement before age 62 for both public and private plans and increased for benefit commencement after age 65.

Removal of Complex Compensation-based Limits--Would increase the 25 percent of compensation limitation on annual additions under a defined contribution plan to 50 percent for 2002 through 2010, and 100 percent for 2011 and thereafter. Would repeal the maximum exclusion allowance applicable to contributions to 403(b) plans, effective on the date of enactment. Would increase the 33-1/3 percent of compensation limitation on deferrals under a section 457 plan to 50 percent for 2002 through 2010, and 100 percent for 2011 and thereafter.

Restoration and Parity for Deferred Compensation and Defined Contribution Limits--Would provide faster annual adjusting for inflation of the 415(c) $35,000 limit on annual additions to a defined contribution plan. Under the proposal this limit amount would be adjusted annually for inflation in $1,000 increments (rather than the current adjustment in $5000 increments).For 403(b) and 401(k) plans, the 402(g) annual contribution limit would be raised to $11,000 in 2002. In 2003 and thereafter the limit would increase in $500 annual increments until it reaches $15,000 in 2010, with annual adjustments for inflation in $500 increments thereafter. The dollar limit on deferrals under a section 457 plan would be increased to $9,000 in 2002, and would be increased in $500 annual increments thereafter until the limit reaches $11,000 in 2006. Beginning in 2007, the limit would be increased in $1,000 annual increments until it reaches $15,000 in 2010. After 2010, the limit would be adjusted annually for inflation thereafter in $500 increments.

Restoration of Compensation Limit--The compensation limit would be increased to $180,000 for 2002, $190,000 for 2003, and $200,000 for 2004 and 2005. After 2005, this amount would be adjusted annually for inflation in $5,000 increments.

Repeal of Coordination Requirements --Would repeal the rules coordinating the section 457 dollar limit with contributions under other types of plans, effective for years beginning after December 31, 2001.

Catch-up Contributions--The 457 catch-up contribution provision would be indexed to equal twice the annual deferral amount (see 457 dollar limit above). Individuals over 50 would be permitted to increase their contributions by $500 for 2002 through 2004, $1,000 for 2005 and 2006, $2,000 for 2007, $3,000 for 2008, $4,000 for 2009, and $7,500 for 2010 and thereafter under all salary reduction plans.

"Roth-Type" Contributions to Salary Reduction Plans--Plan sponsors would be permitted to provide employees the option to treat all or part of their elective deferrals under their 403(b) and/or 401(k) plans as after-tax "Roth-type" contributions, effective for taxable years beginning after December 31, 2003.

Side-Car IRA for Governmental 457 and 403(b) Plans--Would permit governmental 457 and 403(b) plan sponsors to offer a "side-car" IRA through the employer-sponsored salary reduction plan, effective for plan years beginning after December 31, 2002.

Mandatory Cash-outs Must Default to IRAs--Would require that with regard to mandatory cash-outs of small inactive accounts, if the account is in excess of $1000 (and below $5000), and the distributee does not elect to receive the distribution directly, the plan administrator shall make such transfer to an individual retirement account (IRA) or annuity of a designated trustee or issuer. The proposal would apply to distributions that occur after the Department of Labor has adopted final regulations implementing the proposal.

Credit for Low-Income Individual Contributions--Would provide a nonrefundable individual tax credit of up to 50%, depending on adjusted gross income, individual contributions (up to $2000) to retirement vehicles. The credit rates based on AGI would be as follows:

Joint Filers Heads of Households All Other Filers Credit Rate

$0-$30,000 $0-$22,500 $0-$15,000 50 percent

$30,000-$32,500 $22,500-$24,375 $15,000-$16,250 20 percent

$32,500-$50,000 $24,375-$37,500 $16,250-$25,000 10 percent

Over $50,000 Over $37,500 Over $25,000 0 percent

Simplification of minimum distribution rules--Would simplify and update the minimum distribution rules and direct the Treasury to simplify and finalize regulations, effective for years beginning after December 31, 2001.

To:      NASRA Members Directors

From: Jeannine Markoe Raymond

Date: May 4, 2001

Senate Finance Committee staff met with us today and relayed that Sens. Grassley and Baucus hope to include their pension package (S. 742) in the Senate tax reconciliation bill, however, they are receiving quite a bit of resistance from Senators that would like other measures to fit within the budget framework that is being set (~$1.35 trillion in tax cuts). The budget agreement will likely be voted on next Tuesday and the Senate Finance Committee will mark-up a tax reconciliation measure soon after---as early as next Thursday. Grassley and Baucus still intend to introduce a joint Chairman's Mark and hope to get enough support from other Senators to include the pension items in it. They may need to adjust effective dates to bring the cost down (although, if we are in a tax package that lowers marginal tax rates, the cost of our provisions will be lowered as well). THEY STRONGLY EMPHASIZED THAT WE SHOULD NOT BE APPEASED BY SUGGESTIONS THAT WE COULD MOVE AS A STAND-ALONE MEASURE OR IN A SECOND TAX BILL. No one can guarantee that even the co-sponsors of the pension legislation would vote for a stand-alone pension bill or a second tax measure if Congress has already passed $1.35+ trillion in tax cuts. They told us to stick with getting this in the tax reconciliation measure. Again, PLEASE CALL (Capitol Switchboard 202-224-3121) and write your Senators and urge them to co-sponsor S. 742 AND, even more importantly, to support the inclusion of pension provisions in the tax reconciliation bill.

The following are the list of co-sponsors for S. 742 that staff gave us today:

Co-Sponsors of S. 742, as of 5/4/01 (in alpha order)

Baucus

Bayh

Bennett

Breaux

Bunning

Chafee

Collins

Crapo

Durbin

Fitzgerald

Graham

Grassley

Gregg

Hagel

Hatch

Hollings

Hutchinson

Hutchison

Jeffords

Johnson, Tim

Kennedy

Kerry

Kyl

Lincoln

Murkowski

Nelson, Ben

Reid

Roberts

Schumer

Thomas

Torricelli

Voinovich

Attachment

From: Jeannine Markoe Raymond
Sent: Thursday, May 03, 2001
To: 'NASRA Member Directors'
Subject: Portman-Cardin Passes with 407 Votes; Moynihan to Co-Chair Presidential Social Security Commission; GAO to Study State Use of Social Security Numbers

H.R. 10 PASSES WITH 407 VOTES
As many of you have probably heard by now, the Portman-Cardin pension package (H.R. 10) passed the
House yesterday as a free-standing measure with 407 votes!! Majority Leader Dick Armey held a press
conference yesterday morning before floor consideration, lauding the pension reform bill (and again during
floor debate) as second in priority only to the across-the-board tax reductions proposed by President Bush.
Armey stated that "[He] will fight with every bit of effort to see to it that we include this provision--as
important as it is--in that [tax] package we send to the president." NASRA sent up the following letter,
which was signed by 27 other public sector organizations, to all members of the House and brought copies
to the press conference as well. I believe all the major news networks reported on the bill's passage and
seemed to give very favorable descriptions of the provisions in the measure and the package as a whole.
Congratulations to everyone on garnering such a spectacular vote! (Below are 24 members that voted
against the measure, and the one member who did not vote).

We are continuing to meet with Senate offices to obtain similarly strong support in that Chamber. We are up
to 26 co-sponsors of the Grassley-Baucus pension package (S. 742), but are working to get that number up
to 70, if at all possible. We have heard that Senate Finance Committee Chairman Grassley and Ranking
Member Baucus have agreed to issue a joint Chairman's Mark for the tax reconciliation bill on or about May
7. It will follow the parameters set by the budget agreement this week, and while Grassley has cautioned that
the pension package may not fit within the reconciliation measure, we have heard that both he and Baucus
want the pension package IN. Unfortunately, some Senators have stated they would like pension provisions
to instead move in a second tax measure, possibly coupled with a Minimum Wage increase. As second tax
bills have failed to materialize in the past, we continue to push for inclusion into the reconciliation measure.
PLEASE MAKE CALLS AND SEND LETTERS TO YOUR SENATE OFFICES, IF YOU HAVE NOT
ALREADY DONE SO!! The Senate hopes to pass its reconciliation bill before the Memorial Day recess.

MOYNIHAN TO CO-CHAIR PRESIDENTIAL SOCIAL SECURITY COMMISSION
Yesterday, President Bush announced the formation a Social Security Commission to review the
preservation of benefits of current retirees, restore the system's sound financial footing, and establish
personal savings accounts for young workers. The commission is made up of sixteen members, is tasked
with delivering a report by this fall, and will be co-chaired by former Senator Daniel Patrick Moynihan (a
long-time advocate of mandatory Social Security and supporter of private accounts) and Richard Parsons,
co-chief operating officer of AOL-Time Warner.

The other 14 members of the commission are Sam Beard, founder and president of Economic Security 2000;
John Cogan, former OMB deputy director under President Reagan; Robert Deposada, executive director,
Hispanic Business Roundtable; Bill Frenzel, former Minnesota congressman; Estelle James, World Bank
consultant; Robert Johnson, chief executive officer of Black Entertainment Television; Gwendolyn King,
former Social Security commissioner; Olivia Mitchell, former co-chairwoman of the 1994-96 Social Security
Advisory Council's technical panel on retirement saving and Executive Director of the Wharton School's
Pension Research Council; Gerry Parsky, former Treasury assistant secretary under President Ford; Tim
Penny, former Minnesota congressman; Robert Pozen, Fidelity Investments; Thomas Saving, Social
Security public trustee; Fidel Vargas, vice president of Reliant Equity Investors; and Carolyn Weaver,
resident scholar at the American Enterprise Institute.

Democrats Matsui, Rangel, and Daschle immediately criticized the commission as "stacked" in favor of
private accounts. President Bush reportedly sent a letter Senate Minority Leader Tom Daschle (D-SD) and
House Minority Leader Richard A. Gephardt (D-MO) stating that all methods of paying for the transition will
be considered. Opponents of mandatory Social Security fear that the Commission may consider requiring
uncovered state employees enter into the system, particularly since Senator Moynahan has been such a
strong advocate of mandatory coverage in the past.

For more information on the commission, please visit http://www.whitehouse.gov./.

GAO TO CONDUCT STUDY ON GOVERNMENT USE OF SOCIAL SECURITY
NUMBERS
The General Accounting Office (GAO) is currently creating a data collection/survey instrument to determine
state uses of Social Security numbers. As you may recall, legislation was introduced late last year by
members of the House Ways and Means Committee that would limit the use of an individual's Social
Security number (SSN) and prohibit the use of SSNs on government checks. In response to requests for
information on the legislation by the Congressional Budget office and staff of Social Security Subcommittee
Chairman Clay Shaw (R-FL), NASRA submitted testimony on the issue, circulated a survey and provided
information regarding the various uses by state retirement systems.
Although the bill never made it out of Committee, Chairman Shaw did request that the GAO study the matter
and now GAO is interested in hearing from state organizations regarding their perspectives on such a study.
GAO anticipates that the survey instrument will be ready towards the end of the month and has revealed
that while they are considering an online survey, they have concerns on whether an on-line survey would
make sense for all levels of government.

House Vote on H.R. 10
---No Votes = 24 ---
Conyers
Filner
Frank
Gutknecht
Hinchey
Jackson (IL)
Kucinich
LaFalce
Lee
Matsui
McDermott
Neal
Oberstar
Obey
Olver
Owens
Payne
Rangel
Roybal-Allard
Rush
Sabo
Sanders
Stark
Waters

---Not Voting = 1 ---
Moakley

To:       NASRA Members Directors

From: Jeannine Markoe Raymond

Date: April 27, 2001

Update on House and Senate Pension Legislation

PORTMAN-CARDIN LEGISLATION CLEARS COMMITTEES, SCHEDULED FOR FLOOR VOTE NEXT WEEK. The Portman-Cardin pension package (H.R. 10), which includes all the NASRA-supported public pension provisions, passed out of the House Workforce Committee yesterday on a unanimous vote, after passing the House Ways and Means Committee on Wednesday by a vote of 35-6 (all Republicans on the Committee backed the measure and more Democrats did this year than last). The bill is now scheduled to go to the House floor this Wednesday, May 2. NASRA and 26 other public sector organizations and unions are sending joint letters of support to all House offices. We hope we will get a similarly strong vote on the floor this year as we did last (401).

SENATE CALLS AND LETTERS NEEDED. Sponsors of the companion Senate legislation, the Retirement Security Act of 2001 (S. 742), forwarded to us the attached "Dear Colleague" letter to garner additional co-sponsors for the bill. They urged NASRA members to both CALL AND WRITE their Senators that are not yet signed onto the measure. Again, we need a very strong showing of sponsors to show the Senate Leadership that this bill merits floor consideration this year. A tax bill may materialize as early as the beginning of May, so contacts are needed as soon as possible. Attached is a sample letter to send to your Senator(s). Please also call your members, as time is of the essence. All Senators can be reached through the Capitol Switchboard (202) 224-3121 (just ask to be connected with your Senator’s office). They suggested imploring Senators to both sign on as cosponsors to S. 742 and to ask the Senate Leadership to include the provisions in tax legislation this year (as we still are not in the reconciliation bill). Pension advocates continue to meet with all Senate offices. Please cc: or bcc: me on your letters so I may bring them with me. Thanks!!

Attachments (2)

SAMPLE LETTER TO THE SENATE

Cc (or Bcc): Jeannine Markoe Raymond, National Association of State Retirement Administrators

We know that time is extremely limited with regard to Senate consideration of the BEST Act. However, discussions with staff on the Senate Committee on Health Education Labor and Pensions (HELP) revealed that the Chairman would be amenable to removing language on teacher pension portability, at your request. We hope you can reach the Chairman about this as soon as possible.

Grassley-Baucus Pension Bill Original Cosponsors

TO: NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: April 10, 2001

The Grassley-Baucus pension package (S. 742) was introduced last Friday with the following Senate cosponsors:

Sen Grassley, Chuck, Sponsor

Cosponsors:

Sen Baucus, Max

Sen Bayh, Evan

Sen Breaux, John B.

Sen Chafee, Lincoln D.

Sen Durbin, Richard J.

Sen Graham, Bob

Sen Gregg, Judd

Sen Hagel, Chuck

Sen Hatch, Orrin G.

Sen Hutchinson, Y. Tim

Sen Hutchison, Kay Bailey

Sen Jeffords, James M.

Sen Johnson, Tim

Sen Kerry, John F.

Sen Kyl, Jon

Sen Lincoln, Blanche

Sen Murkowski, Frank H.

Sen Reid, Harry M.

Sen Schumer, Charles E.

Sen Torricelli, Robert G.

Thanks for everyone's hard work in assisting to get a good group of original cosponsors. Again, we will be sending out a Dear Colleague letter soon (with a sample letter to send to your Senator(s)) to assist in garnering further cosponsors. We are hoping to get 60+ this year (a filibuster-proof number).

From: Jeannine Markoe Raymond

As outlined in yesterday’s alert, Senate Finance Committee members are planning on introducing a bipartisan Senate pension tax package today. Below is an updated section-by-section analysis of the bill prepared by Senate staff.

1. Increase IRA Limits. Increase the maximum contribution limit to $3,000 in 2002, $4,000 in 2003 and $5,000 in 2004 with indexing in subsequent years.

2. Increase AGI Deductibility Limits. Gradually increase the AGI limits for making deductible IRA contributions to $60,000 for single taxpayers and $100,000 for married couples filing joint returns.

3. Catch-Up Contributions to IRAs. Increase the maximum IRA contribution limit by 50% for taxpayers age 50 and above.

4. Eliminate Marriage Penalty for Roth IRA Contributions. Increase the income limit applicable to married couples making contributions to a Roth IRA to twice the limit applicable to single taxpayers.

5. Deemed IRAs Under Employer Plans. Allow voluntary employee contributions made to a qualified retirement plan, section 403(b) annuity or eligible deferred compensation plan of a state or local government to be treated as a traditional IRA or a Roth IRA for all purposes of the Code, as applicable.

6. Tax-Free Withdrawals for Charitable Purposes. Exclude from gross income distributions from an IRA: (1) to a charitable organization; (2) to a charitable remainder annuity trust or charitable remainder trust; (3) to a pooled income fund (as defined in Section 642©(5)); or (4) for the issuance of a charitable gift annuity.

7. Increase the Income Limit for Roth Conversions. Increase the income limit applicable to married couples making a conversion of a traditional IRA to a Roth IRA to $200,000.

1. Increase Benefit and Contribution Limits for Employer-Sponsored Retirement Plans. The limits on compensation that can be considered under section 401(a)(17) will be increased from $170,000 to $200,000. Limits on contributions under section 402(g), which apply to 401(k) and 403(b) plans, will be gradually increased from $10,500 to $15,000. Limits on defined benefit plan benefits under section 415(b) will be increased from $140,000 to $160,000. The section 457 plan limit will be gradually increased from $8,500 to $15,000. The SIMPLE limit will gradually increase to $10,000. Indexing these limits will also be modified to provide for increases in smaller increments.

2. Plan Loans for Self-Employed Individuals. Permit owners of partnerships and S Corporations to receive plan loans under the same rules applicable to employees and owners of incorporated businesses.

3. Modify Top Heavy Rules. Encourage small businesses to start retirement plans for their employees by eliminating unnecessary administrative complexity in the top heavy rules, counting employer matching contributions toward satisfying the top-heavy minimum contribution requirements, eliminating the accrual requirements for frozen top-heavy defined benefit plans, and simplifying the definition of key employee.

4. Elective deferrals not taken into account for purposes of limits.

Elective deferrals would not be taken into account in applying the deduction limits to other contributions.

5. Repeal of Coordination Requirements for Section 457 Plans. The section 457 limit on deferred compensation would not be reduced by elective deferrals under other types of arrangements such as 401(k) plans or by section 403(b) contributions.

6. Definition of Compensation for Employer Deduction. The definition of compensation for purposes of computing employer deductions includes salary reduction amounts treated as compensation under Section 415.

7. Increase Profit-Sharing and Stock Bonus Contributions. Increase the annual limitation on the amount of deductible contributions to a profit-sharing or stock bonus plan from 15 percent to 25 percent of compensation.

8. Roth 401(k)/403(b) Contributions. Allow a section 401(k) or 403(b) plan to permit participants to elect to have all or a portion of the participant’ s elective deferrals be treated as "designated plus contributions." Designated plus contributions are not excludible from the participant’s gross income and distributions are not included in the participant’s gross income just like Roth IRAs.

9. Credit for Low- and Middle-Income Savers. Provide a non-refundable income tax credit for contributions made by eligible taxpayers to a qualified retirement plan. The maximum credit amount is 50% of up to $2,000 in contributions for a married couple with income up to $30,000 ($15,000 for a single individual) and is completely phased-out for couples with income over $50,000 ($25,000 for singles). The credit sunsets after 5 years.

10. Small Business Pension Start Up Tax Credits. Provide a tax credit of up to 50% of the contributions employers make on behalf of their non-highly compensated employees, up to 3% of their pay. The credit for employer contributions is only available to employers with fewer than 50 employees for the first 3 years of a new retirement plan. In order to qualify, the plan must provide accelerated vesting and a 1% non-elective contribution.

Small Business Pension Administrative Cost Tax Credit: Help small businesses defray the administrative costs of starting a retirement plan by offering a maximum $500 tax credit to businesses with fewer than 100 employees for up to 3 years.

11. Reduced PBGC Premiums for New Plans of Small Employers. The PBGC premium is normally set at $19 per participant. This proposal would set the premium for a small employer plan at $5 per participant for the first five years of a plan.

12. Reduction of Additional PBGC Premium for New and Small Plans. Any applicable variable rate premium would be phased in over a six year period as follows: 0% for year one; 20% for year two; 40% for year three; 60% for year four; 80% for year five and 100% for year six. A cap would also be added on the variable rate premium of small plans.

13. Eliminate the "New Plan Fee". Employers who establish a pension plan must pay a fee, sometimes up to $1000, to receive a determination letter from the Internal Revenue Service stating that the plan is qualified. In order to decrease the costs of establishing retirement plans, the legislation eliminates this fee.

1. Catch-Up Contributions to Qualified Plans. Gradually increases the limit on employee contributions to qualified retirement plans for individuals age 50 and older by 50% of the otherwise applicable limit.

2. Allow More Contributions to DC Plans by Eliminating the ?25% of Salary? rule. A participant is limited in a DC plan to contributing not more than 25% of salary, even though the IRS limit is $10,500. The bill would eliminate the percentage of salary limitation.

3. Three-Year Vesting for Matching Contributions. Under current law, employers may require up to five years of service before an employee is entitled to employer contributions to a defined contribution plan. The proposal would reduce that maximum to three years with respect to employer matching contributions.

4. Division of Section 457 Plan Benefits upon Divorce. Clarify that, for purposes of taxation of distributions from section 457 plans, the recipient of the funds is liable for income taxes. Enactment of this proposal would prevent the case where a participant is taxed on retirement income that, under a divorce decree, belongs to an ex-spouse.

5. Simplify Minimum Distribution Rules. Simplifies the minimum distribution rules applicable to qualified plans; reduces the excise tax applicable to failures to satisfy the minimum distribution rules from 50% to 10%; directs Treasury to update, simplify and finalize its minimum distribution regulations.

6. Modify the Suspension of Participation for Hardship Withdrawals.

Participants who take a hardship withdrawal would be subject to a 6 month suspension rather than a 12 month suspension of participation in the employer’s retirement plans. Any hardship distribution made pursuant to the terms of a plan is not an eligible rollover distribution.

7. Encourage Contributions on Behalf of Domestic Workers. The 10% excise tax applicable to employer nondeductible retirement plan contributions is eliminated for employer contributions to a SIMPLE plan if such contributions are nondeductible solely because they are not a trade or business expense under Section 162 of the Internal Revenue Code.

 

1. Rollovers. The bill would include several provisions to encourage workers who change jobs to roll over their pension and retirement plans into the plan of the new employer. Where employers elect to, the bill would allow workers changing jobs to roll over savings in a 401(k) plan, a 403(b) plan, a governmental plan, or an IRA to a 401(k), 403(b) or governmental 457 plan of a subsequent employer.

2. After Tax Rollovers. Where new employers are willing to accept them, individuals changing employers would be able to roll over after-tax contributions to the new employer’s plan or to an IRA.

3. Waiver of 60-Day Rule. Under current law, terminating employees have only 60 days in which they can roll over their distributions to an IRA without incurring tax. The proposal would allow the Internal Revenue Service discretion to waive the limited sixty-day rollover period.

4. Modify the Same Desk Rule. Conform the treatment of 401(k) plans to the treatment of defined benefit plans and money purchase plans in "same desk" situations. That is, where an employee’s company is acquired by another business, the employee would meet the ?separation from service? definition required to allow portability of the 401(k) benefits to the new employer.

5. Treatment of Forms of Distributions. Employees would be allowed to waive section 411(d)(6) (anti-cut-back rules) under certain circumstances when rolling one DC plan to another. The transferee plan would not be required to preserve the optional forms of benefits under the transferor plan if requirements are met to ensure the protection of participants? interests.

6. Purchase of Service Credit in Governmental Defined Benefit Plans. Ease rules allowing purchase of service credits from one DB plan to another. For example, many teachers purchase ?service credits? when they move from one state to another. Under current law, individuals may not use DC assets, without penalty, to purchase these credits. The bill would allow individuals to purchase these credits with 403(b) or 457 retirement assets.

7. Disregarding Rollovers for Purposes of Cash-Out Amounts. This provision permits an employer to disregard rollovers for purposes of making a cash-out. The provision will remove a disincentive for employers to accept rollovers.

8. Time and Inclusion of Benefits Under Section 457 Plans. Clarifies that amounts deferred under a 457 plan of a state or local government are includible in income when paid. The proposal also modifies a 1986 Act transition rule to apply to agreements providing cost-of-living adjustments.

1. Repeal Full Funding Limit. The bill would repeal the current liability full funding limit on employer contributions to defined benefit plans. This will allow employers to more evenly and securely fund their plans. In 1997, Congress increased the limit from 150% to 170%. Repealing the limit would allow companies even more flexibility when funding their plans.

2. Penalty Tax Relief for Sound Pension Funding. The 10% excise tax on nondeductible contributions would generally not apply to any contributions to a defined benefit plan up to the full funding limit (determined without regard to the current liability component of the full funding limit).

3. Notice of Significant Reductions in Future Plan Benefit Accruals.

Increases the notice requirements where there is an amendment to a defined benefit plan that significantly reduces future benefit accruals. In the case of a significant restructuring of the plan benefit formula, affected participants would have to be given a benefit estimation tool kit allowing participants to easily determine how their individual benefits will be changed.

4. Limited Relief for Multiemployer Plans. The legislation will include a proposal to exempt multiemployer plans from the 100 percent of compensation limit in 415(b)(1)(A). In addition, a limited exemption from the aggregation rules will be applied to multiemployer plans.

5. Protection of Investment of Employee Contributions to 401(k) Plans.

Clarify the definition of assets covered by the limitation on 401(k) plan sponsors’ ability to invest employee contributions in company real estate or stock.

6. Regular Benefit Statements. An annual benefit statement would be required to be sent every year to participants in defined contribution plans. Participants in a defined benefit plan would receive a statement every three years, unless the employer automatically provided an annual notice to employees of the right to receive a benefit statement and how to go about obtaining one.

7. Prohibited Allocations of Stock in an ESOP of an S Corporation.

Establishes a 50% excise tax applicable to distributions from an S Corporation to an ESOP shareholder unless the ESOP is broad-based and benefits rank-and-file employees.

8. Amendments to SAVER Act. Establishes dates for future National Summits on Retirement Savings and facilitates the administration of such summits. Adds six new statutory delegates to future Summits.

9. Rollover of Automatic Distributions. A plan may provide for the automatic distribution of participants’ vested accrued benefits that do not exceed $5,000. Plans that do this would have to directly transfer such distributions to qualified retirement vehicle unless the participant affirmatively elects to receive the distribution directly. This proposal would not apply to distributions of $1,000 or less. A plan would be permitted to send the distribution to a designated financial institution.

1. Use of Prior Year Valuations. To determine the employer contributions needed for defined benefit plans, a prior year valuation can be used, as long as the plan has a history of being fully funded. This will allow more certainty in business budget planning.

2. Encourage ESOP Dividend Reinvestment. In order for an employer to deduct dividends paid on stock held by an ESOP, the employer would be required to give employees a choice of whether to receive dividends in cash or allow them to be reinvested and grow tax-deferred until retirement.

3. Repeal of Unnecessary Transition Rule. The special 1986 Act grandfather would be repealed in light of the changes in the definition of highly compensated employee. General rules would apply.

4. Employees of Tax-exempt Entities. Directs the Treasury to maintain a rule that permits tax-exempt entities to exclude employees participating in a section 403(b) plan from 401(k) coverage rules provided certain participation levels are met.

5. Treatment of Employer-Provided Retirement Advice. Employer-provided retirement planning would be deemed not to constitute a taxable fringe benefit.

6. Pension Plan Reporting Simplification. Directs the Secretary of Treasury to modify the annual return filing requirements for plans eligible to file Form 5500-EZ to eliminate the filing requirement if plan assets do not exceed $250,000.

7. Improvement to EPCRS Program. The IRS would be directed to simplify and expand the voluntary employee plans compliance resolution system.

8. Repeal Multiple Use Test. Employers would be able to use all of the tests for meeting the ACP and ADP tests, rather than being restricted to use of a test on either the ACP or the ADP.

9. Flexibility in nondiscrimination, coverage, and line of business rules.

Plans would be permitted to use a facts and circumstances test when the mechanical tests do not reflect the nondiscriminatory nature of a particular plan design. Appropriate additional safeguards would ensure that this alternative is not used to avoid the purposes of the nondiscrimination rules.

10. Longer Periods for ?Notice and Consent? Regarding Distributions. Under current law, a benefit in excess of $5000 cannot be distributed prior to age 62, or normal retirement age, unless the participant consents no more than 90 days before the benefit commencement. The consent is not valid unless the participant receives an explanation of his/her distribution options. In some situations, an employer advises the participant of the options, but no action occurs within the 90 days. Thus, notice and consent must occur again. The bill extends the period from 90 days to 180 days. Further, participants would be given information to the extent there is any difference in value between different optional forms of benefits so they can make an informed choice.

11. Expand PBGC Missing Participant Program. PBGC’s missing participant program would be expanded to help companies find missing participants who are eligible for benefits from multiemployer plans and defined contribution plans.

12. Authorization for PBGC to Pay Interest on Premium Overpayments. PBGC would be given the authority to pay interest on overpayments of PBGC insurance premiums.

13. Rules for Substantial But Not Majority Owners. Guarantee benefits to individuals owning more than 10 percent but less than 50 percent of a business on the same schedule as individuals owning less than 10 percent of the business.

14. Grant DOL Discretion in Cases of Fiduciary Breach. The Department of Labor would have the sole discretion to waive certain penalties for fiduciary breaches where they deem it appropriate.

15. Benefit Suspension Notice. For individuals not reentering the workforce, and thus not subject to a benefit suspension, the individual benefit suspension notice requirement would be eliminated. Instead, the suspension of benefit rules would have to be outlined in the summary plan description. Individuals reentering the workforce would still be required to receive an individual notice.

16. Plan Amendments. Amendments would not be required to be made before the last day of the first plan year beginning on or after January 1, 2004. For governmental plans, the date for amendments is extended to the first plan year beginning on or after January 1, 2006. Operational compliance would be required with respect to all plans as of the applicable effective date of any amendment made by this Act.

TO:        NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: April 4, 2001

Senate Finance Committee members are planning on introducing a bipartisan Senate pension tax package tomorrow. The Grassley-Baucus bill, named after its lead sponsors, Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Max Baucus (D-MT), will be based on pension legislation reported unanimously out of the Committee last September, which included the same NASRA-supported public pension provisions that are in the Portman-Cardin pension package, among other things.

Last minute changes were made to the legislation to garner the support of the AARP, who opposed the pension packages proposed last Congress. AARP sent a letter of endorsement to Senator Grassley this week, touting the new proposal as a more balanced bill that should serve to increase the amount of both individual and employer-provided retirement savings.

While staff has confirmed that all public pension provisions have remained intact and are identical to last year’s proposals (same as Portman-Cardin legislation), we are currently reviewing the draft language to be sure. Notable differences between the Senate bill and the House bill (Portman-Cardin, H.R. 10) are:

§The Senate bill would permit governmental 457 sponsors to offer a side-car IRA through the plan (this was included in last year’s Senate bill as well). This is not in the House legislation.

§The Senate bill would require that with regard to cash-outs of small inactive accounts, if the account is in excess of $1000 (and below $5,000), and the distributee does not elect to receive the distribution directly, the plan administrator "shall make such transfer to an individual retirement account or annuity of a designated trustee or issuer and shall notify the distributee in writing (either separately or as part of the notice under section 402(f)) that the distribution may be transferred without cost or penalty to another individual account or annuity."

§A nonrefundable individual tax credit for low-income individual voluntary contributions to retirement vehicles is provided for in the Senate bill, but not in the House. (The credit would be up to 50% of the first $2,000 in contributions made by households with AGI under $50,000, individuals with AGI under $25,000 and head of households with AGI under $37,500).

§The Senate bill would permit individuals age 50 and over to contribute an additional 50% of the annual limit to their defined contribution and deferred compensation plans. The House bill permits individuals age 50 and over an additional contribution of $5,000.

§The Senate bill provides for tax-free distributions from IRAs for charitable purposes, and modifies AGI limits for Roth IRAs. These provisions were not included in the House legislation.

§The Senate bill would require plans to provide thorough disclosure to participants if the plan adopts an amendment which has the effect of significantly reducing the rate of future benefit accrual of 1 or more participants. The House has a similar, but more limited provision. Neither provision would apply to governmental plans.

§The Senate version does not include many of the modifications to top-heavy rules that were proposed in the House bill.

Staff will soon be circulating a Dear Colleague letter calling for Senate cosponsors. NASRA members are encouraged to write their Senators at that time and ask for their co-sponsorship of the important legislation. A strong number of sponsors are needed this Congress, as one of the reasons the Senate Leadership did not bring the pension package to the floor for consideration last year was that they did not feel it had enough support.

Senator Baucus recently remarked that "people are not clamoring for this bill." NASRA and 23 other national associations officially launched an online signature campaign, www.PassPensionReform.org, to urge Congress and the Administration to enact long-sought pension legislation this year. This grassroots web site has been created to prepare a national petition that will be submitted to Congress and the President demonstrating that increasing retirement savings is a critical priority for working Americans. We are preparing materials to possibly include on your web sites and in your newsletters. Please forward information on PassPensionReform.org to your active and retired participants to garner as many online signatories as possible.

TO:        NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: March 14, 2001

Portman-Cardin Bill (H.R. 10) Introduced Today!!

Today, Congressmen Rob Portman (R-OH) and Ben Cardin (D-MD) formally introduced the Comprehensive Retirement Security and Pension Reform Act (H.R. 10) with over 250 cosponsors. The legislation was reserved one of the first 10 bill numbers in the 107^th Congress, a designation given to the House leadership’s highest policy priorities. A standing-room-only press conference surrounding the introduction of the bill was held inside the Capitol at 2:00 pm today. Reps. Portman and Cardin were joined by House Majority Leader Dick Armey (R-TX), who hailed the provisions in the bill as well as the bipartisan effort behind it. Rep. Earl Pomeroy (D-ND), a champion of pension portability provisions and the newest Democratic member of the House Ways and Means Committee, also praised the bill and its sponsors. NASRA and other public sector representatives worked with congressional staff to ensure a public sector employee, a teacher, was one of the three "constituents" at the press event to highlight the helpful provisions in the legislation. Attached is a press release and letter NASRA sent out today endorsing the legislation.

PassPensionReform.org---Online Signiture Campaign Underway

Surrounding the introduction of the Portman-Cardin legislation (H.R. 10) today, NASRA and 23 other national associations officially launched an online signature campaign, www.PassPensionReform.org, to urge Congress and the Administration to enact long-sought pension legislation this year.

The lead sponsors of the pension reform package felt that one of the reasons we did not get our provisions enacted into law last year was due to not enough members of Congress, particularly Senators, hearing from their constituents on the legislation. A grassroots web site (http://www.passpensionreform.org) has been created to prepare a national petition that will be submitted to Congress and the President demonstrating that increasing retirement savings is a critical priority for working Americans.

NASRA members are encouraged to forward information on PassPensionReform.org to your participants to garner as many online signatories as possible. NASRA and NCTR representatives have also been asked to sit on a small group that has input on the site itself. We are hoping there will be a chance to add more information to the site, particularly about public sector pension provisions. If you have any questions on the site or would like more information, please feel free to contact me at jeannine@nasra.org or (202)624-1417.

Attachments (5)

Washington, DC…The National Association of State Retirement Administrators (NASRA) announced its strong support for the Comprehensive Retirement Security and Pension Reform Act, being introduced today by Representatives Rob Portman (R-OH), Ben Cardin (D-MD), and over 200 additional cosponsors. This legislation received strong bipartisan support last Congress, passing the House twice with 401 votes, and garnering the support of numerous organizations (a recent letter signed by over twenty-five national state and local government associations and public employee unions is attached). "Many very important public pension provisions are contained in this proposal," NASRA’s president, Jerry Fox, Director of the Wyoming Retirement System, stated in the letter. "Employees in all sectors of the workforce are delaying life decisions in the hopes that this legislation will soon be signed into law. NASRA commends this effort and urges members of Congress and the Administration to work for the enactment of this very important legislation this year."

NASRA members are the administrators of the State retirement systems for the 50 States, the District of Columbia, and the territories of American Samoa, Guam, Puerto Rico and the Virgin Islands. As such, they are responsible for management of the public retirement benefits of nearly 10 million state and local employees, retirees and beneficiaries, and combined pension assets totaling nearly 1.5 trillion dollars.

"With the aging of the baby boom population and the growing strain on federal entitlement programs, officials at every level of government must work together to address all areas of our national retirement policy, including employer-provided pensions and personal savings," the letter stated. "The Portman-Cardin pension reform bill is a bipartisan and comprehensive approach to this end. The measure contains important provisions that will provide needed support for retirement innovations made by States and will facilitate portability among our public pension plans. The bill will also strengthen individual retirement savings and increase the national savings rate by providing additional savings opportunities for older workers and women…All of these measures would help employees build for their retirement, permit States to further enhance their pension programs, and act to modernize and simplify the administration of retirement plans."

NASRA urged members of Congress and the Administration to work in concert to bring this long standing popular proposal to fruition.

§ Providing Enhanced Portability Between Retirement Plans-When a public employee leaves a public sector job, the employee is generally not permitted to rollover pension plan assets among and between various defined contribution and deferred compensation plans. For example, contributions to a 457 plan must now remain in the account until it is distributed to the employee. This proposal would allow rollovers of retirement assets between governmental Section 457 deferred compensation plans and other contributory pensions plans, including IRAs, 403(b) and 401 plans when an employee switches jobs.

Permitting Purchase of Service Credits with 457/403(b) Assets-Many public sector defined benefit pension plans offer participants the opportunity to purchase credit for prior periods of service in the same or other jurisdictions, as it can make a substantial difference in retirement benefits under these programs. However, at the present time, assets in a Section 457 or 403(b) account may not be used for such purchases without incurring a significant financial penalty. This provision would permit assets held in these plans to be used to purchase permissive service credits or for the repayment of refunds in public sector defined benefit plans.

Modernizing Governmental 457 Deferred Compensation Plan Rules- Unlike other salary reduction plans, participants in governmental 457 plans have little flexibility in determining the date of first distribution and in changing their distribution amounts once they have begun. This makes it very difficult for employees to structure the receipt of their payments to meet changing retirement needs. Additionally, an active employee's benefits under a Section 457 plan may not be paid to a former spouse pursuant to a domestic relations order without violating the otherwise applicable restrictions on in-service distributions. Proposed provisions would allow for greater flexibility in 457 plan distributions and provide equitable tax treatment to domestic relations order distributions, similar to treatment afforded by other retirement vehicles.

Removing Complex Compensation-based Limits-At this time, contributions to retirement plans are not only limited by a dollar amount, but are further capped by limits based on a percentage of compensation which unfairly curtails the retirement savings of relatively non-highly paid workers. Compliance with the complex calculation used to determine the compensation-based limits is also burdensome for employers and individuals covered by these arrangements. This provision would remove compensation-based limits on contributions to plans, including a repeal of the complicated Section 403(b) Maximum Exclusion Allowance tests.

Updating Benefit and Contribution Limits and Providing Catch-up Contributions-Increased federal restrictions and limits placed on retirement plans in recent years have had an adverse effect on the administration of plans and on the improvement of benefits. Primarily attributable to deficit reduction tactics, the limits on contributions and benefits are harsher today than they were two decades ago. Proposed changes would stimulate increased savings in retirement plans by updating benefit and contribution limits. Additionally, proposals would allow those approaching retirement to have increased savings opportunities. For individuals who have been unable to take advantage of retirement savings vehicles throughout their career due to lack of disposable income or periods of leave from the workforce, proposed "catch-up contributions" would provide the opportunity to make up for those past contributions at a point in their lives when they are more likely to have the assets and the commitment to retirement savings.

Attachment

Overview—106^th Congress

The 106th Congress adjourned sine die on December 15, 2000, after concluding only the seventh lame-duck session in the past 30 years. While retirement policy had significantly moved up the federal legislative agenda, extreme partisanship—fueled by tight margins in both chambers, presidential impeachment proceedings, the resignation of two Speakers of the House, and a fight for control of the Presidency and both Houses of Congress—made consideration of even the most bipartisan legislation difficult.

Public pension-related items moved in numerous legislative vehicles last Congress: the 1999 Republican Tax Bill (Vetoed by the President), the 2000 House Minimum Wage Bill (Not Considered in Senate), the 1999 Senate Bankruptcy Bill (Pension tax provisions removed), the House Free Standing Retirement Measure (Passed House Twice with 401 votes, Reported Unanimously out of Senate Finance Committee, Did Not Go to Senate Floor), the End of Congress Tax Bill (Passed House, Stalled in Senate), and the 2000 Bankruptcy Bill (Passed Congress, Pocket Vetoed by President). Ultimately, with the results of the 2000 presidential election (and a few congressional races) up in the air through December 2000, work on major legislation was postponed and last-minute negotiations left little room for compromise over tax and bankruptcy measures. Thus, most of the issues on which we were working were carried over to the next Congress.

107^th Congress Kicks Off with Tighter Margins, New Committee Chairs and Under a New Administration
Lawmakers returned to Capitol Hill in early January of this year to kick off the beginning of a very politically charged 107th Congress. A new Administration continues to staff up, with the assistance of many hill staffers, after getting a very late start on its transition. Also, tighter margins in the House and Senate (after

Republicans lose 2 and 4 seats, respectively) required a reexamination of committee ratios, leadership, and staffing. The Senate is in the unique position of having a 50-50 split and has thus set up a new "power-sharing" structure on its committees. The House currently has a ratio of 220 Republicans, 211 Democrats, 2 Independents and 2 Vacancies (Shuster, Dixon), and instated closer ratios on its committees as well.

The Tax Committees in both chambers, which have jurisdiction over pension tax provisions, both have new leadership this Congress. Senator Charles Grassley (R-IA) is the Senate Finance Committee’s new Chairman, following the November election defeat of incumbent Senator William Roth (R-DE), and Senator Max Baucus (D-MT) is the committee’s new ranking minority member, with the retirement of Senator Pat Moynihan (D-NY). Both Grassley and Baucus were champions of pension reform proposals in the 106th Congress, and they will be leading the effort to forward bipartisan pension legislation in the Senate this year. The Senate Finance Committee membership also had an unprecedented level of seat losses and retirements last November and thus has many new faces this year. New Senate Democrats include Senate Majority Leader Thomas Daschle (D-SD), and Senators Jeff Bingaman (D-NM), John Kerry (D-MA), Robert Torricelli (D-NJ), and Blanche Lincoln (D-AR). Senators Jon Kyl (R-AZ) and Olympia Snowe (R-ME) are the newest Senate Republicans on the committee.
 
In the House, the Republican Conference elected Representative William Thomas (R-CA) as the new chairman of the House Ways and Means Committee. While Thomas mostly focused on health issues last Congress, being the former Chairman of the Subcommittee on Health, he has stated that personal retirement security will be one his priorities as Chairman of the full Committee. The Ways and Means Committee will have a ratio of 24 Republicans and 17 Democrats in the 107th Congress, as opposed to the 23-16 proportion last Congress. In addition to the extra seat given to each party this year, Republicans had a vacancy to fill created by the retirement of former Chairman Bill Archer (R-TX). Reps. Kevin Brady (R-TX) and Paul Ryan (R-WI) are the two new Republican Members of the Committee for this Congress. None of the Ways and Means Committee’s 16 Democrats either retired or were defeated at the polls last year, so Democrats had only the one new seat to fill, which went to Rep. Earl Pomeroy (D-ND), a long-time advocate of pension portability provisions.

Thus, while we find ourselves working on many public pension-related issues held over from last Congress, the dynamics surrounding their consideration will be much different this year. The following is the current status of pending legislation:

Portman-Cardin Pension Bill Reintroduced. On March 14, Congressmen Rob Portman (R-OH) and Ben Cardin (D-MD) formally reintroduced the Comprehensive Retirement Security and Pension Reform Act (H.R. 10) with 260 cosponsors. The legislation was reserved one of the first 10 House bill numbers in the 107th Congress, a designation given to the House leadership’s highest policy priorities. A standing-room-only press conference surrounding the introduction of the bill was held inside the Capitol. Reps. Portman and Cardin were joined by House Majority Leader Dick Armey (R-TX), who hailed the provisions in the bill as well as the bipartisan effort behind it. Rep. Earl Pomeroy (D-ND), a champion of pension portability provisions and the newest Democratic member of the House Ways and Means Committee, also praised the bill and its sponsors. Public pension advocates worked with congressional staff to ensure a public sector employee, a teacher, was one of the three "constituents" at the press event to highlight the helpful provisions in the legislation. (Attached is the press release and letter NASRA sent out endorsing the legislation).

Senate Pension Package Soon Expected. Senate Finance Committee members are working on the introduction of their own bipartisan pension tax package. The Grassley-Baucus bill, named after its lead sponsors (the SFC Chairman and Ranking member), will be based on pension legislation reported unanimously out of the Committee last September, which includes the same public pension provisions in the Portman-Cardin pension package, among other things. A key component of the bill that would provide an individual tax credit for low-income savers is currently being retooled. This provision was quite controversial last year and may remain so. Given this important piece of the legislation is not yet finished, staff is planning to wait until after the bill has been introduced, currently targeted for after the April congressional recess, to circulate a Dear Colleague letter calling for Senate cosponsors. NASRA members are encouraged to write their Senators at that time and ask for their co-sponsorship of the important legislation. A strong number of sponsors are needed this Congress, as one of the reasons the Senate Leadership did not bring the pension package to the floor for consideration last year was that they did not feel it had enough support.

PassPensionReform.org---Online Signature Campaign Underway. Surrounding the reintroduction of the Portman-Cardin legislation, NASRA and 23 other pension advocates officially launched an online signature campaign, www.PassPensionReform.org, to urge Congress and the Administration to enact long-sought pension legislation this year. The lead sponsors of the pension reform package felt that one of the reasons we did not get our provisions enacted into law last year was due to not enough members of Congress, particularly Senators, hearing from their constituents on the legislation. This grassroots web site has been created to prepare a national petition that will be submitted to Congress and the President demonstrating that increasing retirement savings is a critical priority for working Americans. NASRA members have been encouraged to forward information on PassPensionReform.org to their plan participants to garner as many online signatories as possible.

Pension Proposals Take Back Seat To Bush’s Tax Initiatives. President Bush unveiled his fiscal year 2002 budget outline and tax cut proposal in his first speech to a joint session of Congress last month. Tax items in the outline included: across-the-board reductions in marginal tax rates and creation of a new 10 percent income bracket; doubling of the child tax credit; reduction of the tax penalty for marriage; repeal of estate, gift, and generation-skipping transfer taxes; expansion of the charitable deduction to individuals who do not itemize their taxes; and permanent extension of the research and experimentation tax credit. Unfortunately, the long-sought pension tax provisions contained in the Portman-Cardin and Grassley-Baucus pension packages were not included. Some have speculated that the Administration’s economic staff does not see pension reforms as a direct economic stimulus, and therefore they did not include them on the list of immediately identifiable items they feel must be enacted. There is also concern that these provisions are being wrongly characterized as corporate tax breaks rather than benefits to individuals. The president’s tax items are currently dominating the legislative agendas of the Senate Finance and House Ways & Means Committees, and consideration of additional tax measures is being tabled for the time being. However, the House leadership has stated its commitment to moving pension provisions as part of a later tax legislation this year, preferably before the April congressional recess.

Prescription Drugs And Social Security Commission Outlined. In addition to tax initiatives, the president’s budget proposal also included broad outlines for reforming Social Security and Medicare. The proposal dedicated $153 billion over 10 years for a prescription drug program for low-income seniors, and outlined general reforms to Medicare, including: preserving Medicare’s current guarantee of access to seniors; providing every Medicare recipient a choice of health plans, including the option of purchasing a plan that covers prescription drugs; covering expenses for low-income seniors; providing streamlined access to the latest medical technologies; not increasing payroll taxes; and establishing an accurate measure of the solvency of the Medicare system.

The President’s proposal also called for the establishment of a Social Security Commission this spring, tasked with making recommendations on Social Security reforms this fall. The President outlined that such reforms would not include cuts to benefits for retirees and near-retirees, would preserve disability and survivor components, would not increase payroll taxes, would not include direct government investment in the private economy, but would definitely include the creation of individually controlled, voluntary personal retirement accounts.

The budget blueprint made no mention of mandatory Social Security coverage of state and local government employees or modifications to the Government Pension Offset(GPO) or Windfall Elimination Provision (WEP). Legislation addressing the GPO (HR 664) was reintroduced on February 14, by Rep. Jefferson (D-LA) with 131 cosponsors, and would not apply the offset to combined pension and S.S. benefits under $1200/month. A hearing on the GPO was held before the House Subcommittee on Social Security last summer, but given its high cost, was not expected to move outside overall Social Security reform. Legislation addressing the WEP has not yet been reintroduced this Congress. Last Congress, it was introduced by Rep. Frank (D-MA) with 140 cosponsors, but did not receive formal consideration. It would not have applied the WEP provisions to those with combined pension and S.S. benefits below $2000/month.

Bankruptcy Protections for Pension Plan Assets. The House and Senate have each passed their own versions of the Bankruptcy Reform Act, and are expected to soon go to conference over the bill. Bankruptcy legislation was passed in the final days of the 106^th Congress, but was pocket vetoed by President Clinton. President Bush has stated his intention to sign the bill into law this year, once it is sent to him by Congress. All of the public pension issues in the bill are expected to remain intact and favorable, including language to exclude all governmental plan assets from the bankruptcy estate, and provisions to clearly exclude from the bankruptcy estate contributions made by employees to governmental pension plans and amounts required to repay a pension plan loan. Pension advocates are still trying to remove the $1 million cap on protections for contributory IRAs, but are cautious that this might adversely affect the other pension provisions. (Senator Kennedy offered an amendment on during Senate floor consideration to do so, but it did not pass). A proposal forwarded last Congress that would have allowed debtors to "waive" their retirement asset protections and essentially use their pensions as collateral is not expected to receive any consideration this year.

Public pension representatives are also working to include clearer language in the legislative history of the new bill regarding the treatment of mandatory employee pension contributions in bankruptcy proceedings. Congressional staff confirmed that legislative history will accompany the conference version of the bill and our changes will be included. In addition, concern was raised this week by practitioners regarding the burden of proof the bill might require of debtors to protect their pension assets. Thus, pension advocates are also currently drafting an "innocuous technical correction" to the legislative language we hope can be added during conference negotiations. We are additionally readying report language on the issue, in case it is too late to get new legislative language added.

New and conflicting case law concerning a debtor’s interest in a governmental 457 plan has also recently been raised. It seems that in some states, the new 457 trust provisions that were enacted in 1996 to protect 457 assets from the creditors of the sponsoring jurisdiction have been found to allow such assets to be made part of a participant’s bankruptcy estate. Pension attorneys have confirmed, however, that the federal bankruptcy reform legislation currently moving through Congress would explicitly exclude all governmental plan assets, including 457 plan assets, from bankruptcy and would remedy the current conflict in case law.

National Panel on Teacher Pension Portability. The BEST (Better Education for Students and Teachers) Act—which unanimously passed out of the Senate Committee on Health, Education, Labor and Pensions (HELP) on March 8 and would modify the Elementary and Secondary Education Act (ESEA) of 1965—includes an amendment offered by Jeff Bingaman (D-NM) to create a National Panel on Portability of Teacher Pensions and Credentials. The panel’s duties would be to study various options for increasing the reciprocity of recognition of teacher credentials, and the portability of teacher pensions, between States. Within one year of its inception, it is to report to the Secretary of Education and appropriate committees of Congress on its study. NASRA’s legislative chair was made aware of this amendment by Senator Bingaman’s staff at a recent meeting of higher education officials, who support this effort. It is suspected to also have the backing of TIAA-CREF. Efforts are underway to remove this amendment from the legislation, as there are concerns that this is the groundwork for a defined contribution mandate and an inappropriate attempt to involve the federal government in the benefits policies of states.

Legislation To Limit The Use Of Social Security Numbers Expected To Be Reintroduced. Legislation to limit the use and sale of Social Security numbers received considerable attention in the waning days of the 106th Congress. Ultimately, however, the restriction did NOT become law. An amendment containing the limitation had been added to the Commerce-Justice-State Appropriations Bill that was passed and sent to the President on December 15. Fortunately, the Labor/HHS Appropriations bill, which was also passed and sent to the President that day, contained language striking the Social Security restriction section. The staff members of the House Social Security Subcommittee interpret the two contradictory provisions as meaning that the restriction was not enacted. NASRA submitted official comments in August on similar legislation (H.R. 4857) introduced by House Social Security Subcommittee Chairman Clay Shaw (R-FL). The bill was reported out of the Ways and Means Committee on October 24, but was not considered further. Shaw did ask the GAO to complete a study on the use of SSNs by government, which was supported by NASRA and other public sector advocates. Staff have stated their intention reintroduce Rep. Shaw’s legislation this year and indicated that while there is little interest in exempting public entities from the purview of the bill, they may consider developing certain criteria that, if met, could provide an exemption. However, there is also continued interest in banning the use of Social Security numbers altogether.

 

TO:        NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: March 6, 2001

Rep. Rob Portman's (R-OH) office informed pension advocates today that he and Rep. Ben Cardin (D-MD) have finalized the date and time for the formal introduction of the Comprehensive Retirement Security and Pension Reform Act, which is now set for March 14^th at 2pm. A press event surrounding the introduction of the bipartisan retirement legislation will take place that day, and will feature Reps. Portman and Cardin, as well as several individuals who will benefit from the bill. NASRA and other public sector representatives worked with staff to ensure a public sector employee, a teacher, will be at the press event to highlight the helpful public pension provisions in the legislation. We will also be distributing press releases in support of the legislation at the press conference. Currently, over 26 national public sector organizations and unions are working together in support the public provisions in the bill. Reps. Portman and Cardin’s offices are also planning a briefing for congressional staff on the provisions in the retirement savings legislation later this month.

SENATE BILL EXPECTED SOON. As stated in earlier alerts, Senate Finance Committee members are still working on the introduction of their own bipartisan pension tax package, although word this week is it is expected shortly. Staff is planning to wait until after the bill has been introduced to circulate a Dear Colleague letter calling for Senate cosponsors. NASRA members are encouraged to write their Senators at that time and ask for their co-sponsorship of the important legislation. A strong number of Senate cosponsors are needed this Congress, as one of the reasons the Senate Leadership did not bring the pension package to the floor for consideration last year was that they did not feel it had enough support.

BANKRUPTCY BILL WILL ASSIST WITH CONFLICTING CASE LAW REGARDING A PARTICIPANT’S INTEREST IN THE GOVERNMENTAL 457 PLAN. Pension attorney Robert D. Klausner informed pension administrators and trustees as his client conference this week of two conflicting court cases surrounding a debtor’s interest in their governmental 457 plan. "A debtor’s interest in a Section 457 deferred compensation plan for Maryland state employees was excluded from her bankruptcy estate. The court’s holding was directly contrary to a bankruptcy court in New York, which recently found that Section 457 benefits for New York state employees were not excluded or exempt from bankruptcy. In re: Beverly Johnson, 254 BR 786 (2000 Bktcy. Ct. NY). The court found that as a governmental plan, the Maryland 457 plan should be excluded from bankruptcy by reason of other applicable non-bankruptcy law that restricted the transfer of the debtor’s beneficial interest in the plan. The court looked at the provisions of Section 457 that make 457 plans trusts and further found that the plan itself contained spendthrift provisions. The court also looked to Maryland’s state law on retirement which found that benefit plans created under state law are exempt form claims of creditors. In reaching this conclusion, the court applied the Supreme Court decision in Patterson v. Shumate from 1992. By contrast, a bankruptcy court in New York found that the 457 account for New York employees was not exempt from bankruptcy because it was the employees’ choice to create the plan. Maryland’s deferred compensation plan was specifically created by statute and was not a ‘self-settled’ trust. In re: Frederick Mueller, 2000 WL 1872965 (2000 Bktcy. Ct. Md.)."

Federal bankruptcy reform legislation currently moving through Congress would explicitly exclude all governmental plan assets, including 457 plan assets, from bankruptcy and would remedy the current conflict in case law. The bankruptcy reform bill also contains helpful provisions for public plans to clearly exclude from the bankruptcy estate mandatory contributions made by employees to governmental pension plans and amounts required to repay a pension plan loan. The legislation passed the House on March 1. The Senate Judiciary Committee also reported out bankruptcy reform legislation last week and is scheduled to take it to the floor this week. All of the public pension issues in the bill are expected to remain intact and favorable.

Pension advocates are still trying to remove a provision in the legislation that would limit the protections for contributory IRAs to $1 million. An amendment is expected to be offered by Senator Kennedy to do so. NASRA, NCTR and other pension groups are also working to include clearer language in the legislative history of the new bill to regarding the treatment of mandatory employee pension contributions in bankruptcy proceedings. Congressional staff confirmed that legislative history will accompany the conference version of the bill and our changes will be included

 TO:        NASRA Member Directors

The Senate Judiciary Committee reported out its version of the Bankruptcy Reform Act this afternoon. Bankruptcy legislation was passed in the final days of the 106^th Congress, but was pocket vetoed by President Clinton. Lawmakers are confident that they can pass it out of the Senate this week and reach a compromise with the House soon after.

All of the public pension issues in the bill are expected to remain intact and favorable, including language to exclude all governmental plan assets from the bankruptcy estate, and provisions to clearly exclude from the bankruptcy estate contributions made by employees to governmental pension plans and amounts required to repay a pension plan loan. Pension advocates are still trying to remove the $1 million cap on protections for contributory IRAs, but are cautious that this might adversely affect the other pension provisions. A proposal forwarded last Congress that would have allowed debtors to "waive" their retirement asset protections and essentially use their pensions as collateral is not expected to receive any consideration this year. NASRA, NCTR and other pension groups are also working to include clearer language in the legislative history of the new bill regarding the treatment of mandatory employee pension contributions in bankruptcy proceedings.

106th Congress (1999-2000)

12-16-00 NASRA Alert: Congress Adjourns Sine Die

11-28-00 NASRA Alert: IRS Releases 2001 Pension Limits (With Caution)

11-16-00 NASRA Alert: Lame Duck Session may be Swift and Uncompromising

11-6-00 NASRA Alert: State Benefits Activities in California and Florida

11-2-00 NASRA Alert: House Floor Update

10-26-00 NASRA Alert: Final Tax Package Emerges and Clears House 237-164

10-23-00 NASRA Alert: Trick or Treat---What to Expect from the 106th Congress?

10-13-00 NASRA Alert: Congress Passes CR to Buy Itself Another Week---Bankruptcy Bill, Pension Tax Provisions, and Legislation Limiting Use of SS#s Still Pending

10-6-00 NASRA Alert: Legislative Update: Pension Measures, Banrkuptcy Bill, Use of Social Security Numbers

9-28-00 NASRA Alert: SSN Bill Passed Unanimously Out of Ways and Means Committee, Senate Version Added to Appropriations Measure

9-21-00 NASRA Alert: Portability Provisions--Transition Time Needed for Mechanical Changes????

9-20-00 NASRA Alert: QUICK UPDATE: Transition Time for Portability Provisions, Bankruptcy, Debt Relief

9-15-00 NASRA Alert: Compilation of Benefit Changes in State Retirement Systems

9-12-00 NASRA Alert: Senate Letters Needed on HR 1102

9-5-00 NASRA Alert: Chairman’s Mark of "Retirement Security And Savings Act Of 2000" Released, Set for Senate Finance Committee Consideration 9/7/00

September_2_2000_Federal_FAX (in PDF)

7-25-00 NASRA Alert: Legislation Under Consideration Would Limit Use Of Social Security Numbers, Information On Impact Needed

7-21-00 NASRA Alert: HR 1102 Passes by an Overwhelming Vote, Letters to Senate Now Needed

7-19-00 NASRA Alert: HR 1102 on House Floor, Phased Retirement Bill Language Available

6-29-00 NASRA Alert: Portman, Leadership Seek More Cosponsors for H.R. 1102 Before Bill Goes to House Floor

June 20, 2000 NASRA Federal FAX (in PDF)

5-23-00 NASRA Alert: TECHNICAL CORRECTIONS ADDED, WAIVER OUT, CAP ON IRAs ONLY

5-18-00 NASRA Alert: SEC Proposed Rule on Pay-to-Play

May 5, 2000 NASRA Federal FAX (in PDF)

4-26-00 NASRA Alert: SENATORS PROPOSE NEW CAP ON RETIREMENT ASSET PROTECTIONS, CALLS/LETTERS NEEDED!!

4-6-00 NASRA Alert: AMENDED SOCIAL SECURITY EARNINGS LIMIT PASSED BY CONGRESS, PRESIDENT EXPECTED TO SIGN WITHIN NEXT SEVEN DAYS

3-22-00 NASRA Alert: UPDATE ON SOCIAL SECURITY EARNINGS LIMIT, BANKRUPTCY BILL

3-7-00 NASRA Alert: SMALL BUSINESS TAX FAIRNESS ACT OF 2000 (HR 3832)

3-1-00 NASRA Alert: Pension Tax Provisions May Go to A Vote in the House, President’s RSA Proposal Currently Unworkable for Tax-Exempt Plans

2-7-00 NASRA Alert: Pension Provisions Included in President's FY2001 Budget Proposal

2-2-00 NASRA Alert: Unanimous-Consent Agreement on Senate Bankruptcy Bill

2-1-00 NASRA Alert: President's State of the Union Retirement Savings Account Proposal

January 21, 2000 NASRA Federal Fax (in PDF)

November 18, 1999 NASRA Federal FAX (in PDF)

11-5-99 NASRA Alert: Pension Tax Provisions and Bankruptcy Protections May Move!!

11-2--99 NASRA Alert: AARP Mandatory Coverage Study Awarded, Calls to Retirement Plans Underway

10-18-99 NASRA Alert: Public Pension Provisions Included in the Minimum Wage Bill (HR 3081)

June 15, 1999 NASRA Federal FAX (in PDF)

Side-by-Side Analysis of Public Pension Provisions in the Leading Federal Pension Packages (in PDF)

April 23, 1999 NASRA Federal FAX (in PDF)

March 19, 1999 NASRA Federal FAX (in PDF)

February 12, 1999 NASRA Federal FAX (in PDF)

NASRA Fact Sheets

January 25, 1999 NASRA Directors' Meeting Legislative Update

DATE: October 26, 2000

· Provide portability of pension assets between 401, 403(b), governmental 457 plans, and IRAs (earlier effective date was included (1/1/2001), however, plans would not be held to the new notice requirements imposed by the bill until 1/1/2002, "if the administrator of such plan makes a reasonable attempt 20 to comply with such requirement.")

· Allow participants in governmental defined benefit plans to use assets in their 457 and 403(b) plans to purchase service credits or for the repayment of refunds (this has always been effective 1/1/2001)

· Provide equitable tax treatment to 457 distributions made pursuant to a domestic relations order (effective 1/1/2001).

· Provide flexibility in governmental 457 distributions (effective 1/1/2001).

· Increase the percent of compensation limits from 25% to 100% of compensation and repeal the 403(b) maximum exclusion allowance provision (MEA) (effective 1/1/2001).

· Increase the 415(b) defined benefit dollar limit to $160,000, effective 1/1/2001.

· Increase the limit on elective deferrals to 401(k), 403(b) and 457 plans to $15,000 (phased-in at $11,000 in 2001 and increasing by $1000 each year until it reaches $15,000 in 2005 and thereafter, indexed.)

· Increase the 401(a)(17) compensation limit to $200,000, effective 1/1/2001.

· Repeal the 457 coordination requirements (effective 1/1/2001)

· Increase the 457 catch-up provision to equal twice the applicable 457 limit 3 years prior to retirement (effective 1/1/2001).

· Permit "Roth-type" contributions to 401(k) and 403(b) plans (effective 1/1/2001)

· Increase 415© contribution to $40,000 (this had not been included in the Senate version, but was added back into the final measure)

· **Provide for a side-car IRA on a 457 plan**This provision was added in the Senate bill and would permit employees to make voluntary qualified IRA contributions to a separate account or annuity established through their governmental 457 plan (effective 1/1/2002).

· Simplify and update the minimum distribution rules

· Permit additional catch-up contributions of $5,000 to all salary reduction plans for those age 50 (phased in, beginning with $1000 in 2001 and increasing to $5000 in 2005 and thereafter, indexed).

Credit for low- and middle-income savers EXCLUDED. The Senate proposal that would have provided a temporary nonrefundable tax credit for voluntary contributions made by eligible taxpayers to a qualified plan, was not included in the final measure. A provision was retained requiring the Treasury Department to study and report to Congress on: (1) expansion of coverage for low- and middle-income workers; (2) levels of pension benefits; (3) quality of pension coverage; (4) worker’s access to and participation in plans; and (5) retirement security.

Trick or Treat---What to Expect from the 106th Congress?

TO: NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: October 23, 2000

While most members of Congress hope to be home this Halloween campaigning for the upcoming elections, much unfinished work remains before the 106^th Congress can adjourn. Heightened tensions in the Middle East diverted federal lawmakers' attention from the domestic agenda, making it all but impossible to come to a close last week. Another continuing resolution was passed to keep the federal government funded through October 25^th. Republican leaders have attempted to set a deadline for final adjournment, and are currently targeting this week to be the last in the session. A number of public pension items continue to remain in play as Congress staggers toward the finish line:

Ø The Senate is still planning on bringing a tax package to the floor separate from the must-do spending measures. In addition to the retirement package (HR 1102), foreign sales corporation provisions and community renewal measures they proposed for the package earlier, they are now suggesting the addition of a Minimum Wage increase, changes to the Fair Labor Standards Act, and small business tax breaks---which are much more volatile provisions. It remains uncertain whether they will have enough time to work out the remaining differences that exist between the House and Senate leadership positions on the measures, and if they do, whether they will be able to produce a final package that will garner a presidential signature.

Ø Bankruptcy reform legislation---which contains favorable provisions regarding the treatment of governmental pension assets, pension contributions and pension loans in bankruptcy---is currently predicted to be the last bill passed out of Congress before their adjournment. Unfortunately, a presidential veto is still expected, and while they may have the votes for a veto override, they will likely not be in session long enough to do so. There is a slim chance that the bill will be signed, however.

Ø Finally, the amendment added to the Commerce-Justice-State appropriations bill (HR 4690) to limit the use and sale of Social Security numbers, has been amended. The language released by congressional staff this evening appears to tighten the definition of "use," which had been requested by NASRA members and other public interest groups, and a provision that would have preempted state laws in this area has been eliminated. Furthermore, changes to other language in the bill may bolster the case that state and local governments are not covered under the measure due to its use of the term "person." HR 4690’s restriction that "no person may display to the public any individual's social security number, or any identifiable derivative of such…" may not apply to public entities, as in 42 USC 1301, the term person is defined as: "an individual, a trust or estate, a partnership, or a corporation" and is distinguished from "state" or from "the United States."

Despite the frantic pace, public pension advocates are still hopeful for the enactment of long-sought proposals and the removal of adverse legislation. As Halloween nears, it is hoped the halls of Congress will be full of more treats than tricks.

Congress Passes CR to Buy Itself Another Week---Bankruptcy Bill, Pension Tax Provisions, and Legislation Limiting Use of SS#s Still Pending

TO: NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: October 13, 2000

Both Chambers of Congress have passed another week-long continuing resolution to keep the government operating through Oct. 20. The House is not expected to return to work until the afternoon of Oct. 17, while the Senate is not scheduled to hold its first vote of the week until the morning of Oct. 18. Numerous state benefits-related items are still in play as lawmakers work to complete necessary spending bills and bring the 106^th Congress to a close:

Bankruptcy Conference Report Emerges and Passes House---With Favorable Public Pension Provisions Included. Bankruptcy Reform Legislation is again gaining momentum as the result of an unusual late-in-the-session maneuver by congressional leaders. Using the empty "shell" of the State Department Authorization bill (H.R. 2415), the substance of which already passed as an amendment to spending legislation, House Republicans late Oct. 11 folded the contents of the bankruptcy reform bill into the still-active legislative vehicle. The House passed the conference report yesterday by a voice vote of 297-114, as the White House reiterated its intention to veto the measure. While there seem to be enough votes for a veto override, there may not be enough time left in the session. The Senate will now take up the measure, where the expectation is that a filibuster will be mounted, swiftly followed by a motion for cloture to kill the filibuster and force a vote. It is currently predicted that such a process--and even more so a veto override scenario--could not be completed before the Congress adjourns.

On a positive note, it looks as though ALL our public pension issues were favorably addressed in the agreement (While we had been assured that our provisions were in good standing, statutory language had not been released until this week):

ØThe favorable Senate language protecting governmental plans was included.

ØAn express statement was included that amounts required to repay a plan loan are not disposable income.

ØA "cap" on the amount of retirement assets protected was added, but it’s set at $1 million and it applies only to contributory
    IRAs, not rollover IRAs.

ØLanguage was expanded to exclude from the bankruptcy estate contributions made by employees to governmental pension plans
   and a specific statement was added that contributions are not "disposable income" in Chapter 13 cases.

ØA provision that would have allowed debtors to "waive" their retirement asset protections and essentially use their pensions as
   collateral, was deleted.

So it seems we are in very good shape if and when this legislation moves.

Lott Discusses Moving Pension Tax Provisions With Stand-Alone Tax Measure by October 19. While the Congressional leadership continues to voice its commitment to enacting a package of retirement security proposals (HR 1102) this year, the strategy for accomplishing this feat continues to change, while time continues to run out. Senate Majority Leader Trent Lott (R-MS) recently stated his hopes that the Senate would complete consideration of a stand-alone package of tax cuts by Oct. 19. Several tax cut proposals remain in play, including pension tax provisions, as well as measures dealing with community renewal, and replacement of the foreign sales corporation system. While it was thought that these items would be included in an omnibus spending measure (which still could be possible), the leadership is now looking to get the tax relief package through the Senate floor as a stand-alone bill. Hopes still remain high that the public pension tax provisions will finally get enacted this year. It looks fairly certain that Congress will have to adjourn sine die next week, so the package will need to move quickly if it is to become law.

SSN Amendment Still in Play.  As stated last week, a Senate measure prohibiting the display of Social Security Numbers and preempting state laws in this area was added to the Commerce Justice State Appropriations Bill (HR 4690) by Senate CJS Subcommittee Chairman Judd Gregg (R-VT), and has additionally been agreed to by Senator Gregg's counterpart in the House, Congressman Hal Rogers (R-KY). Appropriations staff and the White House met recently and the White House included deleting the Gregg language as one of their priorities. In addition, privacy advocates buoyed by the opposition of House Ways and Means Committee Chairman Bill Archer (R-TX) and Social Security Subcommittee Chairman Clay Shaw (R-FL), continue to voice opposition to the Gregg amendment. Both Archer and Shaw also believe the measure that passed out of the Ways and Means Committee a few weeks ago (HR 4857) is a more comprehensive approach to the issue. Earlier this week Representative Shaw asked the GAO to complete a study on the use of SSNs by government, which was supported public sector advocates, including NASRA.

TO: NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: October 6, 2000

1) Pension Provisions Will Likely Be Tied to Appropriations Bill(s). The package of retirement security provisions (HR 1102) continues to enjoy broad bipartisan support and Congressional leaders have indicated their commitment to pass the proposals in the remaining days of this Congress. However, these provisions are not expected to move as a stand-alone measure as we once had hoped, but will instead likely be rolled into final appropriations legislation, possibly even an omnibus spending measure. While this strategy has not met with success in the past, the prevailing wisdom is that Congress will go to great lengths to send the President a bill he can sign, so they may adjourn "sine die" and head home to campaign. Thus, hopes remain high that we will see final enactment of these provisions this year. Staff are currently working out the differences between the House and Senate pension provisions and the White House has conveyed its preference for Senate measures providing tax credits to low-income individuals and small businesses. Nearly all of the NASRA-supported provisions are the same in both bills. NASRA, NCTR and NAGDCA recently sent a memo (which can be found at: http://www.sso.org/nasra/EffectiveDateLttr.htm) to tax staff regarding differing House and Senate effective dates for the portability provisions. It remains uncertain which date will be incorporated into the final measure, although current discussions have indicated an earlier effective date for pre-tax rollovers and possibly a later effective date for post-tax rollovers. Nevertheless, our primary focus is to continue to work for passage of the measure this year. Your letters and calls have been extremely helpful! Again, if you have not sent a letter to your Senators RECENTLY, please do so as soon as possible. These have been extremely beneficial during our visits with congressional offices. A sample letter is posted on the NASRA web site at: http://www.sso.org/nasra/samplesenletter2000. Again, please email or fax me a copy if possible.

2) Bankruptcy Bill Will Likely Include Public Pension Protections, Final Action Uncertain. Congressional leaders and the Administration continue to informally hammer out their differences on the Bankruptcy Reform Act (HR 833), with the hope of working out a compromise before the end of the session. In an effort to move the legislation along, Majority Leader Trent Lott (R-MS) reintroduced the Senate-passed version of the bill without the tax and minimum wage amendments that were originally passed with it (as they would likely be moving on their own and may complicate the conference). This raised concerns with pension advocates as a number of technical differences originally existed between the House and Senate versions of H.R. 833 with regard to the treatment of pensions in bankruptcy. We had been assured that these issues had been favorably addressed in an informal House/Senate agreement on H.R. 833, and would similarly be addressed in the measure when it emerged from conference. Thus, advocates were alarmed when many of these were not included in Senator Lott’s bill, S. 3046. NASRA’s Legislative Chair and President-elect, Frank Ready (MS), spoke with Senator Lott’s bankruptcy staff and was assured that S. 3046 was not a reflection of the Majority Leader’s position on our issues, but rather, was meant to accelerate Senate consideration of bankruptcy legislation in general (http://www.sso.org/nasra/MSLottBankruptcyMemo.pdf). While it currently looks as though this legislation may again be stalled, we are confident that if it moves our public pension provisions will be in good order. Of significant importance is a provision that would clarify that mandatory employee contributions to a defined benefit plan are not to be considered "disposable income" under Chapter 13 and may not be seized by creditors. Bankruptcy proceedings in certain districts continue to be decided unfavorably in this area.

3) Social Security Number Amendment May Not Apply to States. Action continues on legislation to limit the use and sale of Social Security numbers. As stated earlier, staff have conveyed to public advocates that HR 4857---sponsored by House Social Security Subcommittee Chairman Clay Shaw (R-FL) and on which NASRA submitted official comments---is not expected to be further addressed in the waning days of the 106^th Congress. However, a Senate measure addressing the display of Social Security Numbers was recently added to the Commerce Justice State Appropriations Bill (HR 4690) by Senate CJS Subcommittee Chairman Judd Gregg (R-VT), and has additionally been agreed to by Senator Gregg’s counterpart in the House, Congressman Hal Rogers (R-KY).

While the Gregg language would not be as restrictive as the House version, it could actually undermine many of the identity theft protection initiatives at the State level by preempting state efforts in this area. Additionally, many NASRA members have informed me that the language concerning "public display" is vague and could be argued to cover uses that are currently employed by State retirement systems. HOWEVER, public sector advocates recently determined that the Gregg amendment’s use of the term "person" MAY render such restrictions inapplicable to state or local government entities. In 42 USC 1301, the term person is defined as: "an individual, a trust or estate, a partnership, or a corporation" and is distinguished from "state" or from "the United States." Thus, the HR 4690’s restriction that "no person may display to the public any individual's social security number, or any identifiable derivative of such…" would likely not apply to public entities. Of course, the bill still would preempt some state authority in this area.

Furthermore, Ways and Means Chairman Archer recently sent a letter (http://www.sso.org/nasra/ArcherSSLetter.pdf) to House Appropriations Committee Chairman Bill Young (R-FL), asserting jurisdiction over this matter. Additionally, the White House sent a letter in September in opposition to the Gregg bill. Fortunately, it seems that everyone is hoping all actions in this area will be deferred to next year. Hopefully, Mr. Archer’s and the White House’s assistance will put this issue to rest for the time being.

SSN Bill Passed Unanimously Out of Ways and Means Committee, Senate Version Added to Appropriations Measure

`SEC. 1150A. (a) LIMITATION ON DISPLAY- Except as otherwise provided in this section, no person may display to the public any individual's social security number, or any identifiable derivative of such number, without the affirmatively expressed consent, electronically or in writing, of such individual.

`(b) PROHIBITION OF WRONGFUL USE AS PERSONAL IDENTIFICATION NUMBER- No person may obtain any individual's social security number, or any identifiable derivative of such number, for purposes of locating or identifying an individual with the intent to physically injure, harm, or use the identity of the individual for illegal purposes.

`(c) PREREQUISITES FOR CONSENT- In order for consent to exist under subsection (a), the person displaying, or seeking to display, an individual's social security number, or any identifiable derivative of such number, shall--

`(1) inform the individual of the general purposes for which the number will be utilized and the types of persons to whom the number may be available; and

`(2) obtain affirmatively expressed consent electronically or in writing.

`(d) EXCEPTIONS- Except as set forth in subsection (b), nothing in this section shall be construed to--

`(1) prohibit any use of social security numbers permitted or required under section 205(c)(2), section 7(a)(2) of the Privacy Act of 1974 (5 U.S.C. 552a note; 88 Stat. 1909), section 6109(d) of the Internal Revenue Code of 1986, the Fair Credit Reporting Act (15 U.S.C. 1681 et seq.), or the Gramm-Leach-Bliley Act (Public Law 106-102; 113 Stat. 1338);

`(2) prohibit or limit the use of a social security number for purposes of retrieval of other information by professional and commercial users who appropriately use the information in the normal course and scope of their business or profession so long as such number (or any identifiable derivative of such number) is not displayed to the public;

`(3) prohibit or limit the use of the social security number for purposes of law enforcement, including investigation of fraud or as required under subchapter II of chapter 53 of title 31, United States Code, and chapter 2 of title I of Public Law 91-508 (12 U.S.C. 1951-1959); or

`(4) prohibit or limit the use of a social security number obtained from a public record or document lawfully acquired from a governmental agency.

`(e) CIVIL ACTION IN UNITED STATES DISTRICT COURT; DAMAGES; ATTORNEYS FEES AND COSTS; REGULATORY COORDINATION-

`(1) IN GENERAL- Any individual aggrieved by any act of any person in violation of this section may bring a civil action in a United States district court to recover--

`(A) such preliminary and equitable relief as the court determines to be appropriate; and

`(B) the greater of--

`(i) actual damages;

`(ii) liquidated damages of $2,500; or

`(iii) in the case of a violation that was willful and resulted in profit or monetary gain, liquidated damages of $10,000.

`(2) ATTORNEY'S FEES AND COSTS- In the case of a civil action brought under paragraph (1)(B)(iii) in which the aggrieved individual has substantially prevailed, the court may assess against the respondent a reasonable attorney's fee and other litigation costs and expenses (including expert fees) reasonably incurred.

`(3) STATUTE OF LIMITATIONS- No action may be commenced under this subsection more than 3 years after the date on which the violation was or should reasonably have been discovered by the aggrieved individual.

`(4) NONEXCLUSIVE REMEDY- The remedy provided under this subsection shall be in addition to any other lawful remedy available to the individual.

`(f) CIVIL MONEY PENALTIES-

`(1) IN GENERAL- Any person who the Commissioner of Social Security determines has violated this section shall be subject, in addition to any other penalties that may be prescribed by law, to--

`(A) a civil money penalty of not more than $5,000 for each such violation, and

`(B) a civil money penalty of not more than $50,000, if violations have occurred with such frequency as to constitute a general business practice.

`(2) DETERMINATION OF VIOLATIONS- Any willful violation committed contemporaneously with respect to the social security numbers of 2 or more individuals by means of mail, telecommunication, or otherwise shall be treated as a separate violation with respect to each such individual.

`(3) ENFORCEMENT PROCEDURES- The provisions of section 1128A (other than subsections (a), (b), (f), (h), (i), (j), and (m), and the first sentence of subsection (c)) and the provisions of subsections (d) and (e) of section 205 shall apply to civil money penalties under this subsection in the same manner as such provisions apply to a penalty or proceeding under section 1128A(a), except that, for purposes of this paragraph, any reference in section 1128A to the Secretary shall be deemed a reference to the Commissioner of Social Security.

`(4) COORDINATION WITH CRIMINAL ENFORCEMENT- The Commissioner of Social Security shall take such actions as are necessary and appropriate to ensure proper coordination of the enforcement of the provisions of this section with criminal enforcement under section 1028 of title 18, United States Code (relating to fraud and related activity in connection with identification documents). The Commissioner shall enter into cooperative arrangements with the Federal Trade Commission under section 5 of the Identity Theft and Assumption Deterrence Act of 1998 (18 U.S.C. 1028 note) for purposes of achieving such coordination.

`(g) LIMITATION ON REGULATION BY STATES- No requirement or prohibition may be imposed under the laws of any State with respect to any subject matter regulated under this section.

`(h) DEFINITION- In this section, the term `display to the public' means the intentional placing of an individual's social security number, or identifying portion thereof, in a viewable manner on a web site that makes such information available to the public, or otherwise intentionally communicating an individual's social security number, or an identifying portion thereof, to the public.'.

(2) EFFECTIVE DATE- The amendment made by paragraph (1) applies with respect to violations occurring on and after the date which is 2 years after the date of enactment of this Act.

Portability Provisions--Transition Time Needed for Mechanical Changes????

(a) ROLLOVERS FROM AND TO SECTION 457 PLANS-

(1) ROLLOVERS FROM SECTION 457 PLANS-

(A) IN GENERAL- Section 457(e) (relating to other definitions and special rules) is amended by adding at the end the following:

`(16) ROLLOVER AMOUNTS-

`(A) GENERAL RULE- In the case of an eligible deferred compensation plan established and maintained by an employer described in subsection (e)(1)(A), if--

`(i) any portion of the balance to the credit of an employee in such plan is paid to such employee in an eligible rollover distribution (within the meaning of section 402(c)(4) without regard to subparagraph (C) thereof),

`(ii) the employee transfers any portion of the property such employee receives in such distribution to an eligible retirement plan described in section 402(c)(8)(B), and

`(iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,

then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.

`(B) CERTAIN RULES MADE APPLICABLE- The rules of paragraphs (2) through (7) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A).

`(C) REPORTING- Rollovers under this paragraph shall be reported to the Secretary in the same manner as rollovers from qualified retirement plans (as defined in section 4974(c)).'.

(B) DEFERRAL LIMIT DETERMINED WITHOUT REGARD TO ROLLOVER AMOUNTS- Section 457(b)(2) (defining eligible deferred compensation plan) is amended by inserting `(other than rollover amounts)' after `taxable year'.

(C) DIRECT ROLLOVER- Paragraph (1) of section 457(d) is amended by striking `and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting `, and', and by inserting after subparagraph (B) the following:

`(C) in the case of a plan maintained by an employer described in subsection (e)(1)(A), the plan meets requirements similar to the requirements of section 401(a)(31).

Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of transfer.'.

(D) WITHHOLDING-

(i) Paragraph (12) of section 3401(a) is amended by adding at the end the following:

`(E) under or to an eligible deferred compensation plan which, at the time of such payment, is a plan described in section 457(b) maintained by an employer described in section 457(e)(1)(A), or'.

(ii) Paragraph (3) of section 3405(c) is amended to read as follows:

`(3) ELIGIBLE ROLLOVER DISTRIBUTION- For purposes of this subsection, the term `eligible rollover distribution' has the meaning given such term by section 402(f)(2)(A).'.

(iii) LIABILITY FOR WITHHOLDING- Subparagraph (B) of section 3405(d)(2) is amended by striking `or' at the end of clause (ii), by striking the period at the end of clause (iii) and inserting `, or', and by adding at the end the following:

`(iv) section 457(b).'.

(2) ROLLOVERS TO SECTION 457 PLANS-

(A) IN GENERAL- Section 402(c)(8)(B) (defining eligible retirement plan) is amended by striking `and' at the end of clause (iii), by striking the period at the end of clause (iv) and inserting `, and', and by inserting after clause (iv) the following new clause:

`(v) an eligible deferred compensation plan described in section 457(b) of an employer described in section 457(e)(1)(A).'.

(B) SEPARATE ACCOUNTING- Section 402(c) is amended by adding at the end the following new paragraph:

`(11) SEPARATE ACCOUNTING- Unless a plan described in clause (v) of paragraph (8)(B) agrees to separately account for amounts rolled into such plan from eligible retirement plans not described in such clause, the plan described in such clause may not accept transfers or rollovers from such retirement plans.'.

(C) 10 PERCENT ADDITIONAL TAX- Subsection (t) of section 72 (relating to 10-percent additional tax on early distributions from qualified retirement plans) is amended by adding at the end the following new paragraph:

`(9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS- For purposes of this subsection, a distribution from an eligible deferred compensation plan (as defined in section 457(b)) of an employer described in section 457(e)(1)(A) shall be treated as a distribution from a qualified retirement plan described in 4974(c)(1) to the extent that such distribution is attributable to an amount transferred to an eligible deferred compensation plan from a qualified retirement plan (as defined in section 4974(c)).'.

(b) ALLOWANCE OF ROLLOVERS FROM AND TO 403(b) PLANS-

(1) ROLLOVERS FROM SECTION 403(b) PLANS- Section 403(b)(8)(A)(ii) (relating to rollover amounts) is amended by striking `such distribution' and all that follows and inserting `such distribution to an eligible retirement plan described in section 402(c)(8)(B), and'.

(2) ROLLOVERS TO SECTION 403(b) PLANS- Section 402(c)(8)(B) (defining eligible retirement plan), as amended by subsection (a), is amended by striking `and' at the end of clause (iv), by striking the period at the end of clause (v) and inserting `, and', and by inserting after clause (v) the following new clause:

`(vi) an annuity contract described in section 403(b).'.

(c) EXPANDED EXPLANATION TO RECIPIENTS OF ROLLOVER DISTRIBUTIONS- Paragraph (1) of section 402(f) (relating to written explanation to recipients of distributions eligible for rollover treatment) is amended by striking `and' at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting `, and', and by adding at the end the following new subparagraph:

`(E) of the provisions under which distributions from the eligible retirement plan receiving the distribution may be subject to restrictions and tax consequences which are different from those applicable to distributions from the plan making such distribution.'.

(d) SPOUSAL ROLLOVERS- Section 402(c)(9) (relating to rollover where spouse receives distribution after death of employee) is amended by striking `; except that' and all that follows up to the end period.

(e) CONFORMING AMENDMENTS-

(1) Section 72(o)(4) is amended by striking `and 408(d)(3)' and inserting `403(b)(8), 408(d)(3), and 457(e)(16)'.

(2) Section 219(d)(2) is amended by striking `or 408(d)(3)' and inserting `408(d)(3), or 457(e)(16)'.

(3) Section 401(a)(31)(B) is amended by striking `and 403(a)(4)' and inserting `, 403(a)(4), 403(b)(8), and 457(e)(16)'.

(4) Subparagraph (A) of section 402(f)(2) is amended by striking `or paragraph (4) of section 403(a)' and inserting `, paragraph (4) of section 403(a), subparagraph (A) of section 403(b)(8), or subparagraph (A) of section 457(e)(16)'.

(5) Paragraph (1) of section 402(f) is amended by striking `from an eligible retirement plan'.

(6) Subparagraphs (A) and (B) of section 402(f)(1) are amended by striking `another eligible retirement plan' and inserting `an eligible retirement plan'.

(7) Subparagraph (B) of section 403(b)(8) is amended to read as follows:

`(B) CERTAIN RULES MADE APPLICABLE- The rules of paragraphs (2) through (7) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A), except that section 402(f) shall be applied to the payor in lieu of the plan administrator.'.

(8) Section 408(a)(1) is amended by striking `or 403(b)(8),' and inserting `403(b)(8), or 457(e)(16)'.

(9) Subparagraphs (A) and (B) of section 415(b)(2) are each amended by striking `and 408(d)(3)' and inserting `403(b)(8), 408(d)(3), and 457(e)(16)'.

(10) Section 415(c)(2) is amended by striking `and 408(d)(3)' and inserting `408(d)(3), and 457(e)(16)'.

(11) Section 4973(b)(1)(A) is amended by striking `or 408(d)(3)' and inserting `408(d)(3), or 457(e)(16)'.

(f) EFFECTIVE DATE; SPECIAL RULE-

(1) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2001.

(2) SPECIAL RULE- Notwithstanding any other provision of law, subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act of 1986 shall not apply to any distribution from an eligible retirement plan (as defined in clause (iii) or (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an individual if there was a rollover to such plan on behalf of such individual which is permitted solely by reason of any amendment made by this section.

QUICK UPDATE: Transition Time for Portability Provisions, Bankruptcy, Debt Relief

TO: NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: September 20, 2000

***********

There is discussion among congressional staff about pushing the effective date for the portability provisions back to 2002 because of complaints they have been hearing about needed transition time. This concern does not seem to be shared with those NASRA members with whom I’ve spoken (who have indicated they would "like this done as soon as possible," as they have a lot of interested people who would like to roll money or purchase service credit immediately). Staff has asked for us to get back to them on this. One idea being floated is to make purchase of service credits and 457 rollovers effective 2001 (as was originally in the bill), but make all other portability provisions effective 2002. Please let me know your thoughts on this issue (email: jeannine@nasra.org or call 202-624-1417).

Yesterday, Sen. Lott introduced S. 3046, the "Bankruptcy Reform Act of 2000." It appears the legislation includes provisions to protect pensions from bankruptcy creditors—HOWEVER, it also includes the waiver provision that we successfully fought earlier this year (that would permit a debtor to use pensions as collateral). The legislation has been placed on the Senate Calendar (106-807). I am uncertain whether the amendments to protect mandatory contributions are included in this bill.

The Debt Relief and Retirement Security Reconciliation Act of 2000 (HR 5203) was passed out of the House yesterday 401-20 and includes the stand-alone Portman-Cardin pension bill (HR 1102) passed in July. It is speculated that this was done to provide options for conferencing with the Senate pension measure, which is a reconciliation bill. It remains unclear whether this will remain a stand-alone measure, continue to be coupled with debt relief, or be rolled into a much larger tax and/or appropriations measure. It may be the last piece of legislation addressed this Congress.

 

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Compilation of Benefit Changes in Public Retirement Systems

TO: NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: September 15, 2000

A compilation of recent benefit changes in public retirement systems is posted at the following web site address (in PDF): http://www.sso.org/nasra/BenChnges9_15_00.pdf. This was put together by Debby Kaller at Colorado PERA, and pulled together information from the National Conference of State Legislatures Preliminary Report, Retirement Systems' 1999 Comprehensive Annual Financial Reports, Newsletters for 2000 & 1999 Years, and Retirement Systems' Web Sites. The compilation lists the effective dates, requirements, prior provisions and new provisions for each system that indicated a change in the following areas:

§Studies

§Funding Issues

§Governance

§DC Plan Developments

§DROP Programs

§Partial Lump Sum Benefits

§New Plans Or Tiers

§Tier Transfer Options

§Exemptions Form Retirement System Coverage

§Member Contribution Rates

§Employer Contribution Rates

§Vesting Requirements

§Service Requirement Formula Changes

§Temporary Formula < Age 62

§Early Retirement Formula Changes

§Final Average Salary

§Member Contribution Account Refunds

§Gains Sharing And Similar Programs

§Service Retirement Requirements

§Early Retirement Options

§COLAs

§Survivor Benefits

§Disability Benefits

§Post Retirement Employment

§Long-Term Care Programs

§Supplemental DC Plans

§Health Insurance Programs

§Service Credit Purchases

§Annual Leave and Sick Payments

§Salary Inflation Assumption

§Early Retirement Incentives

My deepest thanks to Debby for pulling all this together in such an effective manner and sharing it with us!!

Senate Letters Needed on HR 1102!

AARP SUPPORTING MANDATORY SOCIAL SECURITY. In a speech discussing public policy implications for an aging society, AARP Executive Director Horace Deets told the National Press Club on September 8 that all newly hired public employees should be brought into Social Security. His recommendation was contained in remarks setting forth AARP’s key election year issues which he said were Medicare prescription drug benefits and Social Security reform. Also on the list was support for the expansion of private individual retirement savings accounts and other measures to increase individuals' savings as an addition to--not a replacement for--the guaranteed benefits provided by Social Security. Information on these and other AARP legislative issues is available from the AARP Web site at http://www.aarp.org.

Sincerely,

Chairman’s Mark of "Retirement Security And Savings Act Of 2000" Released, Set for Senate Finance Committee Consideration 9/7/00

TO: NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: September 5, 2000

The Joint Committee on Taxation has released its Description of the "Retirement Security And Savings Act Of 2000," which is scheduled for mark-up by the Committee on September 7, 2000. This pension and retirement reform reconciliation bill is expected to cost roughly twice as much as the stand-alone pension bill (H.R. 1102) passed by the House on July 19, due to the addition of provisions in the Senate bill to aid small businesses and low- and moderate-income individuals. Such additions were made to appease Finance Committee Democrats. As a result, no Democratic amendments are expected during committee mark-up, and it is hoped that the bill may even pass the committee unanimously.

Like HR 1102, the "Retirement Security And Savings Act Of 2000" would:

Provide portability of pension assets between 401, 403(b), governmental 457 plans, and IRAs

Allow participants in governmental defined benefit plans to use assets in their 457 and 403(b) plans to purchase service credits or for the repayment of refunds

Provide equitable tax treatment to 457 distributions made pursuant to a domestic relations order

Provide flexibility in governmental 457 distributions

Increase the percent of compensation limits from 25% to 100% of compensation and repeal the 403(b) maximum exclusion allowance provision (MEA)

Increase the 415(b) defined benefit dollar limit to $160,000

Increase the limit on elective deferrals to 401(k), 403(b) and 457 plans to $15,000 (phased-in)

Increase the 401(a)(17) compensation limit to $200,000

Repeal the 457 coordination requirements

Increase the 457 catch-up provision to equal twice the applicable 457 limit 3 years prior to retirement.

Permit "Roth-type" contributions to 401(k) and 403(b) plans

Simplify and update the minimum distribution rules

(The JCT description did not mention an increase the 415(c) annual addition limit for defined contribution plans to $40,000. It is uncertain whether this was merely a discrepancy in the JCT description. The description did state the bill provide faster indexing of the $30,000 by changing it to $1,000 increments rather than the current $5,000).

Catch-up Contributions Different than HR 1102. Instead of permitting additional catch-up contributions of $5,000 to all salary reduction plans for those age 50 and over, like HR 1102, the Senate measure would instead permit such individuals an additional contribution equal to the lesser of (1) 50% (phased-in) of the maximum elective deferral dollar limit or (2) the participant's compensation for the year reduced by any other elective deferrals of the participant for the year. It would also apply to IRAs, unlike the House bill.

Credit for low- and middle-income savers. The Senate proposal would provide a temporary nonrefundable tax credit for voluntary contributions made by eligible taxpayers to a qualified plan. (House Democrats offered a refundable tax credit amendment to the House bill, but it failed primarily on party lines). The maximum annual contribution eligible for the credit would be $2,000. The credit rate would depend on the adjusted gross income (AGI) of the taxpayer(s) and would be phased-out completely for joint filers with an AGI of $50,000 or more (see table below). The credit would be in addition to any deduction or exclusion that would otherwise apply with respect to the contribution, and would offset minimum tax liability as well as regular tax liability. The credit would be available with respect to elective contributions to 401(k)s, 403(b)s, 457(b)s, SIMPLEs, SEPs, IRAs, Roth IRAs, and voluntary after-tax employee contributions to a qualified retirement plan. Anti-churning provisions are included that would reduce contributions eligible for the credit by taxable distributions received in the current year and two years prior to the year the credit is claimed. The proposal would be effective for taxable years beginning after December 31, 2000, and before January 1, 2006. The credit rates based on AGI would be as follows:

 White House Reaction Unknown. Before the House passed HR 1102, the White House issued a statement saying it was "strongly opposed" to the measure, stopping short of a veto threat. Democratic floor statements at the time indicated Treasury Secretary Lawrence Summers’ intention to recommend a veto if the House bill reached President Clinton. It is unclear whether the Senate bill, with its added provisions for moderate income people and small businesses, would produce a different White House reaction.

 The full text of the JCT "Description of the Retirement Security And Savings Act Of 2000" can be found at: http://www.senate.gov/~finance/9-5-2mar.htm.

Legislation Under Consideration Would Limit Use Of Social Security Numbers, Information On Impact Needed

TO:         NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: July 25, 2000

The Privacy and Identity Protection Act of 2000 (HR 4857) was recently passed by the House Ways and Means Social Security Subcommittee in response to recent cases of identity theft, and would prohibit the public display and use of individuals' Social Security numbers (companion legislation was also introduced in the Senate, S. 2876). Public pension advocates are working with congressional staff to determine the potential impact such legislation may have on state and local retirement systems and plans. Ways and Means committee staff, in particular, are very interested in receiving information from us to address any needed technical changes before the bill is marked up by the full Committee (likely after the August Congressional recess). Please email (jeannine@nasra.org) or fax (202/624-1419) me regarding whether your system uses social security numbers, and if so, for what purposes (internal payroll, benefit statements, benefit payments, etc).

The text of H.R. 4857 can be found on the Thomas web site: http://thomas.loc.gov. In sum, the following areas have been identified as potential areas of concern:

• Individuals' account numbers could not be displayed on an Internet site or in any other material made available or sold to the general public. Governments/agencies would have to ensure that access to such numbers is restricted.
• Social Security account numbers could not be used on any check issued for payment.
• Social Security account numbers could not be displayed on any card or tag provided to employees for purposes of identification.

I am currently working with other pension and government groups and would like to get our compilation together prior to leaving for the NASRA annual conference. If possible, please send me your information by NEXT TUESDAY, AUGUST, 1, 2000. Also, please alert me if you identify other issues in the legislation that may be cause for concern by your system. Thank you for your assistance!

TO:        NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: July 21, 2000

Dave Craik (Delaware PERS) and I met with Chairman of the Senate Finance Committee's (William V. Roth, Jr. R-DE) committee tax staff yesterday to discuss Senate strategy on HR 1102 and highlight the pending retirement provisions that would assist the great State of Delaware. We learned they would like to take the measure up in their Committee before the next congressional recess (July 29-September 4). However, they want to be sure the rest of the Committee and members of the Senate are on board. They encouraged us to weigh in with Senators and encourage expedited action on the measure.

Attached is a sample letter to send to your Senators (similar to the one you sent to the House). Again, please cc: or bcc: me on the letter so I may reference it during contact with congressional offices. Thanks for all your efforts on this and congratulations on a very impressive House vote 401-25!!!!

HR 1102 on House Floor, Phased Retirement Bill Language Available

TO:        NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: July 19, 2000

Just wanted to send an alert that HR 1102 is currently on the House floor (for those interested in watching the CSPAN coverage). HR 1102 is the Comprehensive Retirement Security and Pension Reform Act that passed out of the Ways and Means Committee last week (see 7/13/2000 alert). It was decided late last night that the bill will be taken to the floor of the House on this morning, not on Thursday as had been previously expected. It is anticipated that debate on the rule for the bill will be followed by a Democratic substitute, similar to the one seen last week in the Ways and Means Committee, which would not have deleted any provisions from the bill, but instead proposed expanding the current legislation by adding a Retirement Savings Accounts proposal (a refundable tax-credit for low- and moderate-income individual contributions to IRAs, 401(k)s, 403(b)s and 457s), more small business tax credits, further 415 relief for multiemployer plans, and a Sense of the House regarding cash balance pension conversions. (The amendment failed on a party-line vote of 13-22, the primary reason offered in opposition being that the new RSA provision did not yet have a revenue score, but would likely cost up to twice as much as all the pension and IRA changes combined).

At last count, there were 197 cosponsors of HR 1102, many added in the last couple of days. It is also understood that the Democratic Leadership will not come out in opposition to the measure. Hopefully, there will be a strong floor vote for the final legislation.

The bill language from the Phased Retirement Liberalization Act (HR 4837), introduced last week by Congressman Pomeroy (Senator Grassley has companion legislation in the Senate), is now available and can be obtained from the congressional internet site: http://thomas.loc.gov. This bill would permit in-service distributions prior to normal retirement age for those individuals age 59 1/2 or with 30 years of service. It would not mandate such distributions, but would permit them to be made without violating the otherwise applicable qualification rules.

Portman, Leadership Seek More Cosponsors for H.R. 1102 Before Bill Goes to House Floor

TO: NASRA Member Directors

FROM: Jeannine Markoe Raymond

DATE: June 29, 2000

Representative Rob Portman (R-OH) and members of the House Leadership met with pension advocates this week to discuss strategy surrounding a stand-alone retirement security measure (See 6/20/00 NASRA Federal FAX). They intend to send to the House floor the bipartisan pension package Reps. Portman and Ben Cardin (D-MD) co-authored early this Congress, H.R. 1102 (The Comprehensive Retirement Security and Pension Reform Act). The measure will be marked-up by the House Ways and Means Committee following the July 4 recess--where it is expected to retain most of the provisions passed as part of the last year’s tax bill, IRA limit increases and maybe a tax incentive for low-income individuals--and will hopefully go to the House floor before the August congressional recess.

H.R. 1102 currently enjoys broad bipartisan support, with 180 members cosponsoring the measure, however, it is still short a majority. Rep. Portman encouraged us to get as many cosponsors added to the bill as possible to ensure a strong message is sent when the bill goes to the floor. Attached is a sample letter to send to your members in the House. (Thanking those members who are current cosponsors of HR 1102 and encouraging their continued support in retaining public pension provisions. For those members who are not yet cosponsors, it encourages them to lend their endorsement).

Please cc: or bcc: me on your letters if possible, so I may have them on hand for visits/discussions with congressional offices. If you have any questions or need additional information, please feel free to call (202/624-1417) or email (jeannine@nasra.org) me. Thank you.

The following is a list of the current cosponsors of H.R. 1102:

SPONSOR: Rep Portman, Rob (introduced 3/11/1999)

COSPONSORS(180), ALPHABETICAL [with dates of cosponsorship]:

Rep Abercrombie, Neil - 3/21/2000 Rep Andrews, Robert E. - 6/15/1999

Rep Armey, Richard K. - 5/24/1999 Rep Baird, Brian - 6/22/1999

Rep Baldacci, John Elias - 7/13/1999 Rep Baldwin, Tammy - 7/20/1999

Rep Ballenger, Cass - 6/29/1999 Rep Barcia, James A. - 6/9/1999

Rep Barrett, Bill - 6/10/1999 Rep Bass, Charles F. - 11/1/1999

Rep Bentsen, Ken - 3/11/1999 Rep Bereuter, Doug - 2/29/2000

Rep Berkley, Shelley - 7/1/1999 Rep Bishop, Sanford D. Jr. - 3/21/2000

Rep Blumenauer, Earl - 6/29/1999 Rep Blunt, Roy - 3/11/1999

Rep Boehlert, Sherwood L. - 5/13/1999 Rep Boehner, John A. - 3/11/1999

Rep Bonior, David E. - 6/8/1999 Rep Bono, Mary - 6/29/1999

Rep Borski, Robert A. - 7/20/1999 Rep Boswell, Leonard L. - 6/15/1999

Rep Brady, Robert - 6/9/1999 Rep Camp, Dave - 4/21/1999

Rep Capps, Lois - 10/21/1999 Rep Cardin, Benjamin L. - 3/11/1999

Rep Carson, Julia - 3/29/2000 Rep Collins, Mac - 4/28/1999

Rep Combest, Larry - 5/24/1999 Rep Condit, Gary A. - 7/15/1999

Rep Cook, Merrill - 5/18/1999 Rep Costello, Jerry F. - 6/29/1999

Rep Coyne, William J. - 5/24/1999 Rep Crane, Philip M. - 6/22/1999

Rep Cubin, Barbara - 5/15/2000 Rep Cunningham, Randy (Duke) - 8/3/1999

Rep Delahunt, William D. - 7/26/1999 Rep Diaz-Balart, Lincoln - 6/29/1999

Rep Dicks, Norman D. - 7/1/1999 Rep Dixon, Julian C. - 9/28/1999

Rep Doyle, Michael F. - 5/19/1999 Rep Dunn, Jennifer - 5/4/1999

Rep Emerson, Jo Ann - 11/10/1999 Rep English, Phil - 5/4/1999

Rep Eshoo, Anna G. - 4/27/1999 Rep Evans, Lane - 6/9/1999

Rep Ewing, Thomas W. - 6/8/1999 Rep Farr, Sam - 7/26/1999

Rep Fletcher, Ernest L. - 6/9/2000 Rep Foley, Mark - 5/19/1999

Rep Forbes. Michael P. - 6/8/1999 Rep Ford, Harold, Jr. - 3/9/2000

Rep Fowler, Tillie - 2/15/2000 Rep Franks, Bob - 7/22/1999

Rep Frost, Martin - 3/18/1999 Rep Ganske, Greg - 2/10/2000

Rep Gibbons, Jim - 5/3/2000 Rep Gilman, Benjamin A. - 5/13/1999

Rep Gonzalez, Charles A. - 4/27/1999 Rep Goodling, William F. - 6/8/1999

Rep Green, Gene - 8/3/1999 Rep Hastings, Doc - 7/20/1999

Rep Hayworth, J. D. - 5/4/1999 Rep Hefley, Joel - 5/3/2000

Rep Herger, Wally - 4/21/1999 Rep Hinchey, Maurice D. - 7/15/1999

Rep Hobson, David L. - 5/4/1999 Rep Hooley, Darlene - 6/29/1999

Rep Houghton, Amo - 3/11/1999 Rep Hoyer, Steny H. - 4/28/1999

Rep Hulshof, Kenny C. - 6/9/1999 Rep Hutchinson, Asa - 5/24/2000

Rep Jenkins, William L. - 5/2/2000 Rep Johnson, Nancy L. - 3/11/1999

Rep Johnson, Sam - 9/14/1999 Rep Jones, Stephanie Tubbs - 3/22/2000

Rep Kanjorski, Paul E. - 7/1/1999 Rep Kaptur, Marcy - 6/15/1999

Rep Kelly, Sue W. - 6/10/1999 Rep Kennedy, Patrick J. - 6/29/1999

Rep Kilpatrick, Carolyn C. - 6/10/1999 Rep King, Peter T. - 6/8/1999

Rep Klink, Ron - 5/25/2000 Rep Kolbe, Jim - 3/11/1999

Rep Kucinich, Dennis J. - 6/14/1999 Rep Kuykendall, Steven T. - 8/3/1999

Rep LaFalce, John J. - 6/17/1999 Rep LaHood, Ray - 4/21/1999

Rep Lampson, Nick - 10/21/1999 Rep Lantos, Tom - 9/8/1999

Rep Largent, Steve - 6/9/1999 Rep LaTourette, Steve C. - 7/1/1999

Rep Lazio, Rick - 5/6/1999 Rep Leach, James A. - 3/21/2000

Rep Lee, Barbara - 6/17/1999 Rep Levin, Sander M. - 6/8/1999

Rep Lewis, Jerry - 7/27/1999 Rep Lewis, John - 3/11/1999

Rep Lewis, Ron - 5/13/1999 Rep LoBiondo, Frank A. - 5/6/1999

Rep Lofgren, Zoe - 4/4/2000 Rep Lowey, Nita M. - 9/13/1999

Rep Lucas, Ken - 5/18/1999 Rep Maloney, James H. - 9/15/1999

Rep Manzullo, Donald A. - 5/18/1999 Rep Mascara, Frank - 8/3/1999

Rep McCarthy, Carolyn - 5/23/2000 Rep McCarthy, Karen - 10/12/1999

Rep McCollum, Bill - 5/2/2000 Rep McCrery, Jim - 3/11/1999

Rep McDermott, Jim - 9/8/1999 Rep McHugh, John M. - 4/27/1999

Rep McInnis, Scott - 11/18/1999 Rep McIntosh, David M. - 6/8/1999

Rep McNulty, Michael R. - 6/8/1999 Rep Metcalf, Jack - 5/4/1999

Rep Miller, Gary - 6/29/1999 Rep Minge, David - 6/29/1999

Rep Mink, Patsy T. - 6/8/1999 Rep Moore, Dennis - 5/6/1999

Rep Morella, Constance A. - 3/11/1999 Rep Myrick, Sue - 5/18/1999

Rep Nadler, Jerrold - 7/26/1999 Rep Ney, Robert W. - 5/19/1999

Rep Nussle, Jim - 3/11/1999 Rep Ose, Doug - 6/10/1999

Rep Pallone, Frank, Jr. - 4/21/1999 Rep Pascrell, Bill, Jr. - 8/3/1999

Rep Pastor, Ed - 7/21/1999 Rep Pelosi, Nancy - 6/29/1999

Rep Peterson, Collin C. - 9/21/1999 Rep Petri, Thomas E. - 6/29/1999

Rep Pickett, Owen B. - 7/1/1999 Rep Pomeroy, Earl - 3/11/1999

Rep Pryce, Deborah - 5/24/1999 Rep Quinn, Jack - 6/8/1999

Rep Rahall, Nick J., II - 5/13/1999 Rep Ramstad, Jim - 3/11/1999

Rep Regula, Ralph - 3/8/2000 Rep Rodriguez, Ciro - 6/17/1999

Rep Ros-Lehtinen, Ileana - 6/15/1999 Rep Rothman, Steve R. - 6/10/1999

Rep Roukema, Marge - 6/29/1999 Rep Ryan, Paul - 3/8/2000

Rep Sandlin, Max - 9/8/1999 Rep Sawyer, Tom - 5/19/1999

Rep Schaffer, Bob - 10/21/1999 Rep Schakowsky, Janice D. - 9/14/1999

Rep Shaw, E. Clay, Jr. - 6/14/1999 Rep Shows, Ronnie - 4/21/1999

Rep Simpson, Michael K. - 6/17/1999 Rep Smith, Adam - 9/8/1999

Rep Stabenow, Debbie - 5/24/2000 Rep Strickland, Ted - 7/13/1999

Rep Sununu, John E. - 8/3/1999 Rep Sweeney, John E. - 6/14/1999

Rep Talent, James M. - 5/13/1999 Rep Tancredo, Thomas G. - 4/29/1999

Rep Tanner, John S. - 3/11/1999 Rep Terry, Lee - 3/9/2000

Rep Thomas, William M. (Bill) - 5/19/1999 Rep Thompson, Mike - 6/22/1999

Rep Thornberry, William (Mac) - 2/10/2000 Rep Thurman, Karen L. - 5/19/1999

Rep Traficant, James A., Jr. - 6/17/1999 Rep Turner, Jim - 11/4/1999

Rep Upton, Fred - 6/8/1999 Rep Vento, Bruce F. - 5/18/1999

Rep Walsh, James T. - 5/6/1999 Rep Wamp, Zach - 6/9/1999

Rep Watkins, Wes - 6/14/1999 Rep Watts, J. C., Jr. - 8/5/1999

Rep Weiner, Anthony D. - 6/15/1999 Rep Weldon, Dave - 5/15/2000

Rep Weller, Jerry - 3/11/1999 Rep Weygand, Robert A. - 9/8/1999

Rep Whitfield, Ed - 4/21/1999 Rep Wise, Robert E., Jr. - 9/14/1999

Rep Wolf, Frank R. - 6/8/1999 Rep Woolsey, Lynn C. - 4/21/1999

TECHNICAL CORRECTIONS ADDED, WAIVER OUT, CAP ON IRAs ONLY

TO:         NASRA Directors

FROM: Jeannine Markoe Raymond

DATE: May 23, 2000

Staff to the Senate Judiciary Committee contacted us yesterday to give us the good news that our technical corrections had been successfully added to the House/Senate agreement on bankruptcy legislation. The technical correction would clarify that mandatory pension contributions (and possibly pension loans) are not "disposable income" in Chapter 13 bankruptcy cases. Staff also ensured us that the clear language protecting all governmental plan assets from bankruptcy creditors was included in the agreement.

Waiver Dropped, Cap added on IRAs Only

In addition, we were ensured that a provision in the Senate-passed version of the bankruptcy bill that would permit a debtor to waive protection of pension assets and potentially use pensions as collateral (See 4/11/00 and 3/22/00 alerts) was dropped from the agreement. The authors of the "waiver provision" had agreed earlier to eliminate the provision, but had strongly stated their intention to add a "cap provision" in its stead, which would limit the amount of retirement assets protected from bankruptcy creditors. In a closed-door session with staff out of the room, leadership and the majority committee members agreed to allow a cap, but it was to apply to IRAs and Roth IRAs only and would be a flat $1 million.

Final legislative language is not available at this time. We will know more about the extent of these pension provisions when they are obtainable in their final form. The bill still has a long road ahead and quite a few issues that may still block its enactment.

If you have any questions or would like additional information, please feel free to contact me at jeannine@nasra.org or (202) 624-1417.

SEC Proposed Rule on Pay-to-Play

TO: NASRA Directors

FROM: Jeannine Markoe Raymond

DATE: May 18, 2000

According to a May 16, 2000 Securities and Exchange Commission press release, SEC Chairman Arthur Levitt is praising the Investment Counsel Association of America (ICAA)'s recently released report for developing best practices to address pay-to-play abuses in the investment advisory industry.

The ICAA report was issued in response to the Commission’s proposed rule concerning pay-to-play. ICAA requested that the SEC consider issuing a rule in lieu of its current proposal that would require investment advisers having or seeking state and local government clients to adopt policies and procedures that are reasonably designed to prevent pay-to-play abuses. Additionally, ICAA strongly suggested that the Commission consider issuing a rule that would require all federally registered investment advisers to adopt a code of ethics. Such a "code of ethics" approach was first raised by two subcommittees of the American Bar Association in a comment letter on the proposed rule. The ICAA believes its alternative approach is better suited to the investment advisory profession than the proposed rule and is consistent with other industry initiatives in this area. 

The SEC press release quoted Chairman Levitt as saying, "The [ICAA] report and the recommendations are important steps toward preventing pay-to-play abuses in the investment advisory industry and indicate that the industry is serious about addressing those problems. I commend the ICAA on this important initiative. Working together, the SEC and the advisory industry can help eliminate the abusive practices that undermine the integrity of the investment adviser selection process. The ICAA’s report gives us a number of recommendations to consider as we craft a final rule to eliminate pay-to-play abuses in the industry."

The "ICAA Report: Pay-to-Play and the Investment Advisory Profession" can be obtained from the ICAA web site: http://www.icaa.org/public/letters/comment051500.pdf.

SENATORS PROPOSE NEW CAP ON RETIREMENT ASSET PROTECTIONS, CALLS/LETTERS NEEDED!!

TO:         NASRA Directors

FROM: Jeannine Markoe Raymond

DATE: April 26, 2000

Senators Charles Grassley (R-IA) and Jeff Sessions (R-AL) are reportedly readying a "sliding scale cap" amendment to limit the amount of retirement assets protected from bankruptcy creditors. Both Senators will likely be part of the small conference committee to work out the differences between the House and Senate versions of the Bankruptcy Reform Act (HR 833) and will thus have direct input on any final legislation in this area.

This new cap provision comes on the heels of sharp criticism over a last-minute and widely unknown provision added to the Senate-passed version of the bankruptcy bill that would permit a debtor to waive protection of their pension assets and potentially use their pensions as collateral (See 4/11/00 and 3/22/00 alerts). Many members of Congress, including the Chairmen of the Senate Health Education Labor and Pensions (HELP) and Finance Committees, as well as the Administration have weighed in their opposition to the provision. A hearing was even held to allow for these concerns to be aired (there was no testimony in favor of the waiver).

The sliding scale cap provision will likely be offered as an alternative to the waiver. According to press reports, the current idea is to set a cap on protected pensions to $1 million for those age 65, and reduce that amount accordingly for bankrupt individuals below that age. Depending on how the proposal is written, it could have extremely serious ramifications on employee retirement savings, the administration of plans, and on national retirement policies.

NASRA and other pension advocates, public interest groups, and employee organizations, are weighing in with members of Congress on this and other pension issues in the bankruptcy bill. Most notably, we are strongly urging the removal of the waiver provision, opposition opposing to any form of cap on retirement asset protections, calling for retention of clear language protecting all governmental plan assets, and advocating the addition of technical corrections to ensure mandatory pension contributions and loan repayments are excluded from the definition of "disposable income" in Chapter 13 bankruptcy cases.

YOUR HELP IS NEEDED TO WEIGH IN ON THESE ISSUES! Please contact your delegation as soon as possible. A sample letter (talking points) is attached.

If you have any questions or would like additional information, please feel free to contact me at jeannine@nasra.org or (202) 624-1417.

 SAMPLE LETTER

 On behalf of the ________ Retirement System [and its participating public jurisdictions, employees, retirees and beneficiaries], I am writing regarding with reference to pension provisions contained in H.R. 833, the Bankruptcy Reform Act. A number of technical differences between the House and Senate versions of H.R. 833 are still unsettled with regard to pensions. These issues, if not resolved, wouldunresolved issues have the potential of impairing the retirement savings of state and local government employees and the administration of state and local government retirement systems, as well as fostering conflicting laws and increased increasing litigation.

We respectfully request your assistance on with these very important provisions:

Include Senate Clarification that Protects Governmental Plans

Both the Senate and House versions of H.R. 833 expand the types of retirement savings protected from creditors’ claims in bankruptcy proceedings. The Senate version, however, contains a more refined definition ensuring all governmental plan assets are protected. We urge the retention of Senate language under Section 224 to ensure that all government plan assets are protected.

Eliminate Waiver in Senate Version that Nullifies New Retirement Asset Protection

The Senate, but not the House, version of H.R. 833 would allow a debtor to waive the new protections for retirement savings discussed above. If enacted, creditors would likely include this waiver in the boilerplate language of every loan or credit agreement. The waiver would nullify the new retirement asset protections on which both Houses of Congress have worked so diligently. We strongly encourage the deletion of Senate bill Section 303(c) from any final bill.

Oppose Potential Amendment Capping Protection of Retirement Assets

An amendment has been proposed to place a cap on the amount of retirement savings that may be deemed excludable from the bankruptcy estate (in lieu of or in addition to the waiver provision). A cap is unnecessary as Congress has already limited the amounts that can be saved in these plans through tax code restrictions. This provision is a direct departure from long-standing Congressional efforts to bolster retirement security and simplify the administration of plans. Any perceived abuse by a handful of individuals should not become the justification for allowing creditors to tap into the retirement savings of ordinary Americans. We urge your opposition to any amendment capping the protection of retirement savings.

1.) Required Employee Contributions are Not Disposable Income. Until recently, courts adhered to the well-established rule that contributions required of an employee to a defined benefit plan are not disposable income in Chapter 13 cases. A few months ago, two courts ruled otherwise. If allowed to stand, these decisions will impair the funding of affected defined benefit plans. Current language in the House and Senate versions would clarify that such contributions are not part of the bankruptcy estate. We request that the conferees also include in the final version of the bill a technical correction clarifying that employee contributions do not constitute "disposable income."

2.) Plan Re-Payments are Not Disposable Income. Some retirement plans allow their participants to take an advance on their retirement assets (often referred to as a plan "loan," which is a misnomer). Current language in the House and Senate versions clarifies that a bankrupt plan participant who is bankrupt may continue to re-pay these advances. A technical correction should also be added to make clear that the assets necessary to repay a plan advance are also not considered "disposable income" in Chapter 13 cases.

3.) Employee Plan Contributions are Not Part of Estate if Holder of Contributions Becomes Bankrupt. Both the House and Senate bills clarify that employee contributions to employee benefit plans should not be considered assets of a debtor employer or other debtor entity if such entity goes into bankruptcy. At present, the language only covers employee contributions to private sector employee benefit plans. While employer bankruptcies are a rarity in the public sector, public employee money could be passing through the hands of a bankrupt custodian or other third party. Thus, this provision should be clarified to include employee contributions to public sector employee benefit plans.

Thank you for your consideration of these very important issues. If you have any questions, please feel free to contact me directly at ________.

Sincerely,

AMENDED SOCIAL SECURITY EARNINGS LIMIT PASSED BY CONGRESS, PRESIDENT EXPECTED TO SIGN WITHIN NEXT SEVEN DAYS

TO:     NASRA Directors

FROM: Jeannine Markoe Raymond

DATE: April 6, 2000

On March 28, Congress cleared for the White House H.R. 5, the Senior Citizens' Freedom to Work Act of 2000, which would repeal the current $1 reduction in Social Security benefits for every $3 a recipient age 65-69 earns above $17,000 (in 2000). The bill was officially presented to the President on March 29, and according to discussions with administration staff today, is expected to be signed into law within the next seven days (although no official announcement has yet been made).

Technical Change Added in Senate

As stated in earlier alerts, the legislation does not the change the earnings limit applicable to individuals who take early retirement benefits from Social Security. People age 62 through 64 would continue to be subject to a strict earnings limit, losing $1 in benefit for every $2 in earnings above $10,080 a year. However, a "technical" provision was added in the Senate to waive the earnings limit starting in January of the year a recipient turns 65. Thus, under the final bill passed by Congress, individuals could actually begin receiving Social Security benefits without an earnings penalty before age 65 if they will turn 65 within the same calendar year.

Social Security Survivor Benefits Are Equally Affected by Provision

In response to a recent NASRA inquiry, staff at the office of Legislative and Congressional Affairs at the Social Security Administration (SSA) clarified that Social Security survivor benefits would be affected by the repeal of the earnings limit in the same way regular Social Security benefits are affected. According to the SSA staff, individuals eligible to receive survivors benefits do so in lieu of their own benefit under Social Security (if the survivors benefit is greater). Under the legislation passed by Congress, an individual age 65-69 that is eligible to receive a survivors benefit would also no longer have that benefit reduced by $1 for every $3 they earned above $17,000 (in 2000). It was confirmed that the earnings limit for those age 62-64 would still apply to all benefits, including survivors benefits (except for those turning age 65 within the calendar year).

UPDATE ON SOCIAL SECURITY EARNINGS LIMIT, BANKRUPTCY BILL

Attachment (3 pages)

SMALL BUSINESS TAX FAIRNESS ACT OF 2000 (HR 3832)

• Increase in contribution limits to 401(k), 403(b) and 457 plans to $14,000 (phased-in)
• Increase 457 catch-up provision to equal twice the applicable 457 limit 3 years prior to retirement
• Increase in the 415(b) defined benefit dollar limit to $160,000
• Increase in 415(c) defined contribution dollar limit to $40,000
• Increase in 401(a)(17) compensation limit to $200,000
• Repeal of 457 coordination requirements
• Permit "Roth-type" contributions to 401(k) and 403(b) plans
• Permit additional catch-up contributions to all salary reduction plans for those age 50 and over (phased-in at an additional 10% a year until 40% in 2004 and thereafter)
• Increase percent of compensation limits from 25% (33 1/3% for 457 plans) to 100% of compensation.
• Simplify and update the minimum distribution rules.
• Repeal the special minimum distribution rules applicable to section 457 plans (to provide flexibility in governmental 457 distributions)
• Clarify the tax treatment of 457 domestic relations orders
• Provide portability between 401, 403(b) and governmental 457 plans (The direct rollover and withholding rules would be extended to distributions from a governmental section 457 plan, and Section 72(t) excise tax would apply to amounts rolled into 457 plans from qualified plans).
• Allow participants in governmental defined benefit plans to use assets in their 457 and 403(b) plans to purchase service credits or for the repayment of refunds
• Permit plans to disregard benefits attributable to rollover contributions for purposes of the cash-out rules.

[*NOTE: MOST PROVISIONS ARE PHASED-IN BEGINNING IN 2001]

 Pension Tax Provisions May Go to A Vote in the House, President’s RSA Proposal Currently Unworkable for Tax-Exempt Plans

TO:         NASRA Directors

FROM: Jeannine Markoe Raymond

DATE: March 1, 2000

PENSION TAX PROVISIONS EXPECTED TO GO TO THE FLOOR NEXT WEEK

The House is expected to soon take up a bipartisan package of minimum wage and tax legislation (HR 3081), which includes the host of pending public pension tax provisions, such as portability, limit increases, and 457 modernization. This bill was introduced last fall and was reported out of the Ways and Means Committee, but never went to the floor due to the lack of support for certain minimum wage and/or tax pieces. Leadership staff told us today the bill will most likely go to the floor next Thursday. Staff confirmed reports that H.R. 3081 will be split into two bills and introduced on Monday. The first part will be the tax provisions (including pension proposals). The second part will be a $1 over 3 year increase in the minimum wage. This will presumably allow separate votes on each, providing a better chance for passage.

National public sector groups continue to weigh in to urge the retention of public pension provisions in any final bill passed out of the House. It remains uncertain whether the legislation would be able to go directly to a Senate/House conference committee, due to the Senate’s passage of minimum wage/tax legislation in its bankruptcy reform bill last month. That bill (S 625—now HR 833) has been on hold due to the procedural issues surrounding the inclusion of those provisions.

PREFERABLE BANKRUPTCY PROVISIONS IN SENATE PACKAGE—Regarding the bankruptcy provisions, the Senate's language is preferable regarding the protection of pension assets from bankruptcy creditors. The House's language (passed on May 5, 1999) does not provide protections for all plans (due to a stipulation that protection would only apply to plans who have received a favorable IRS determination letter). In addition, the Senate bill is also preferable regarding the treatment of loans from plans. Pension advocates are readying a letter to conferees to urge the House to recede to the Senate on the pension bankruptcy language. NASRA members are encouraged to contact their members on this issue, particularly if your plan has not received a determination letter and/or provides plan loans.

TREASURY OFFICIALS DETAIL PRESIDENT'S RETIREMENT SAVINGS ACCOUNTS (RSA) PROPOSAL, CURRENT BUSINESS TAX CREDIT FOR EMPLOYER MATCHES WOULD NOT WORK FOR TAX EXEMPT ENTITIES—As stated in earlier alerts, the President's FY2001 budget proposal includes a new retirement savings initiative aimed at building on existing retirement programs such as employer-sponsored plans and IRAs. The proposed Retirement Savings Accounts (RSAs) would essentially provide a government match (in the form of a tax credit to the employer or the financial institution for 100 percent of the matching contribution) for individuals and families making elective deferrals, either through their employer-sponsored voluntary salary reduction plan or through an IRA. The proposal provides a progressive match aimed at lower-income individuals and families that have little or no tax liability, and do not benefit from the current tax incentives surrounding voluntary salary reduction plans. The matches would be on the first $2,000 contributed by a couple ($1,000 per individual) and phased out for couples earning between $25,000 and $80,000 (individuals earning between $12,500 and $40,000). Certain withdrawals would be allowed, but only after 5 years and only for qualified purposes like paying for medical care, buying a house, or paying for college. Contributions to RSAs would accumulate tax-free.

According to recent discussions with Treasury officials and staff who put together the RSA proposal, the business tax credit approach to the RSA proposal currently does not provide any accommodations for salary reduction/deferred compensation plans of state and local governments and other entities that do not pay business taxes. Treasury did discuss the possibility of providing a tax credit to the Third Party Administrator or financial institution with whom the assets were invested. Officials indicated the need to continue discussions with the public sector and others regarding a feasible approach for tax exempt employers and their employees. Public pension representatives are scheduled to meet with Treasury officials on this issue in particular next week.

Private sector employers and financial institutions seemed somewhat open to the RSA concept, however, many of them had their own reservations regarding the feasibility of the current proposal even for tax-paying employers. Nonetheless, the idea of providing additional savings incentives to those currently not benefiting from tax deferrals has received favorable attention from members of Congress, although it has thus far surrounded providing a direct tax credit to the individual. Discussions are emerging on whether this kind of proposal indicates an opportunity for compromise with the Administration on retirement issues. It has been suggested by some that this could possibly be coupled with the bipartisan pension tax legislation, such as the Portman-Cardin bill, to provide even greater appeal on Capitol Hill.

At a meeting with Representative Portman this morning, the congressman reaffirmed his continued efforts to get pension provisions passed in any vehicle possible. While the Congressman hopes the legislation will pass when the House considers HR 3081 next week, he is also positioning the proposals to move with other tax legislation that may move this year, including a potential independent bill on retirement issues. He said he was open to the Administration’s RSA idea, although he was already aware of the administrative issues, particularly for tax-exempt employers.

 Pension Provisions Included in President's FY2001 Budget Proposal

TO: NASRA Directors

FROM: Jeannine Markoe Raymond

DATE: February 7, 2000

The President's FY2001 budget proposal was officially released today. As expected, a number of pension initiatives were included, such as the Retirement Savings Account proposal outlined in the President's State of the Union address (and summarized in the 2/1/00 alert), as well as many NASRA-supported public pension provisions. The budget document provides an analytical overview of the proposals, but no legislative language. A more thorough analysis of the provisions will be done when such language is made available. Proposals outlined in the FY2001 budget include (in the order they appear):

• Establishing Retirement Savings Accounts (RSAs)
• Providing for payroll deduction IRAs
• Increasing the maximum annual addition limit for defined contribution plans from 25 to 35 percent of compensation
• Clarifying the division of Section 457 assets upon divorce
• Requiring non-consensual (less than $5K) cash-outs of retirement assets to be rolled to an IRA unless the participant affirmatively elects a cash distribution.
• Allowing portability of retirement assets between all plans when employees switch jobs, including 401, 403(b), governmental 457 plans and IRAs. Requiring separate accounting for amounts rolled into 457 plans from qualified plans (such amounts would be subject to the Section 72(t) excise tax on early lump sum distributions).
• Extending the direct rollover and withholding rules to distributions from a governmental section 457 plan; requiring governmental section 457 plans to provide written notification regarding eligible rollover distributions similar to that provided by qualified plans and section 403(b) tax-sheltered annuities, however, plans would not be required to accept rollovers.
• Allowing transfers from 457 and 403(b) plans to governmental defined benefit plans for the purchase of service credits or repayments of refunds.

  ---

  Unanimous-Consent Agreement on Senate Bankruptcy Bill

  TO: NASRA Directors

  FROM: Jeannine Markoe Raymond

  DATE: February 1, 2000

  Bankruptcy reform legislation (S. 625) was pulled back from a near death experience last week, after leaders on both sides of the aisle agreed by unanimous-consent to avoid a cloture vote that probably would have killed the bill in this Congress. The bill is currently on the Senate floor and a final vote on the measure could occur as early as today.

  There are 13 amendments that will be considered under strict time agreements laid out in the unanimous consent agreement. Two of the amendments, one on abortion and one on guns, will obviously be contentious, but are expected to be tabled after debate. None of the other amendments is considered to pose a threat to getting the bill finished. A potential amendment capping the amount of retirement assets protected from bankruptcy creditors is not one of the 13 agreed-to amendments. A congressional aide to Senator Grassley, the author of the potential cap amendment, relayed to reporters this week that they were still "considering strategies on capping the amount of retirement plan assets that could be exempted from a bankruptcy estate," but declined to elaborate on the options under consideration. Pension advocates do not believe at this time that such an amendment will be offered during current floor consideration, but are continuing to work with other Senators, such as Senator Orrin Hatch (R-UT), who oppose such an amendment. This issue could later emerge during Senate/House negotiations.

  Pension Provisions May Be Stripped for Procedural Reasons. As we discussed at the Winter Directors' Meeting, S. 625 includes protections for pension assets from bankruptcy creditors. In addition, a Republican minimum wage amendment was added on the Senate floor last November (before Congress adjourned) that included the public pension provisions. Once passed, a conference committee will meet to work out the difference between the Senate bill and a tougher House version (H.R. 833), which was passed last May. The House version does not include minimum wage or pension tax provisions, which raises procedural issues that would require them to be removed from the Senate bill. (In speaking with House leadership staff yesterday, this seems very likely.) Conference negotiations are expected to be difficult on the bankruptcy provisions alone, which could prolong consideration. There is always the possibility that the House could bring its version of minimum wage legislation (HR 3081), which also includes public pension provisions, to the floor for a vote so that the entire package could be conferenced. It remains uncertain as to how things will unfold.

  ---

  President's State of the Union Retirement Savings Account Proposal

  TO: NASRA Directors

  FROM: Jeannine Markoe Raymond

  DATE: February 1, 2000

  As many of you are aware, the President's State of the Union address included a new retirement savings proposal. Different in many ways from last year's universal savings account "USA" initiative, the proposed Retirement Savings Accounts (RSAs) would build on existing retirement programs such as employer-sponsored plans and IRAs, instead of calling for a federally-administered account. (A short excerpt from the President's State of the Union address and the White House summary of the proposal is attached).

  Based on the summary, and discussions with administrative/congressional staff, the proposal aims to provide a progressive federal tax cut/match for individuals and families contributing towards their retirement savings, either through their employer-sponsored plan or through an IRA. Lower-income individuals and families that have little or no tax liability, do not benefit from the current tax incentives to promote retirement savings. Thus, this proposal aims to provide a government match (in the form of a tax credit to the employer or the financial institution for 100 percent of the matching contribution) to provide additional incentives and savings. The matches would be on the first $2,000 contributed by a couple ($1,000 per individual) and phased out for couples earning between $25,000 and $80,000 (individuals earning between $12,500 and $40,000). Certain withdrawals would be allowed, but only after 5 years and only for qualified purposes like paying for medical care, buying a house, or paying for college. Contributions to RSAs would accumulate tax-free.

  The proposal is similar to legislation (H.R. 2553) introduced by Rep. Earl Pomeroy (D-ND) last summer (and discussed by his staff at the Joint Legislative Conference last week) that would provide a federal tax credit equal to 50 percent of the first $2,000 a worker contributes to a retirement savings vehicle (for a maximum credit of $1,000). Instead of a government match to the employer, however, the Family Investment Retirement Savings Tax (FIRST) Credit Act would provide a direct tax credit to individuals and families who contribute to an IRA or an employer-sponsored retirement plan, including 401(k) plans, 403(b) plans, and 457 plans. The tax credit would be phased out at adjusted gross incomes of $31,000-$41,000 for individuals and $51,000-$61,000 for married couples.

  The idea of providing additional savings incentives to those currently not benefiting from tax deferrals has received favorable attention from members in the Senate as well. Discussions are emerging on whether this could be coupled with the bipartisan pension tax proposals, such as the Portman-Cardin bill, to provide even greater appeal on Capitol hill.

  "Tens of millions of Americans live from paycheck to paycheck. As hard as they work, they still don't have the opportunity to save. Too few can make use of IRAs and 401(k) plans. We should do more to help all working families save and accumulate wealth. That's the idea behind the Individual Development Accounts, the IDAs. I ask you to take that idea to a new level, with new Retirement Savings Accounts that enable every low- and moderate-income family in America to save for retirement, a first home, a medical emergency, or a college education. I propose to match their contributions, however small, dollar for dollar, every year they save. And I propose to give a major new tax credit to any small business that will provide a meaningful pension to its workers. Those people ought to have retirement as well as the rest of us."

  --President Clinton, State of the Union Address, January 27, 2000

  
  Excerpts from the White House Summary of President Clinton's State of the Union Proposal for Retirement Savings

  The President's Retirement Savings Accounts (RSAs) proposal will give 76 million Americans the opportunity to build wealth and save for their retirement through a progressive tax cut. The President's proposal builds on the successful model of Individual Development Accounts (IDAs), extending generous matches to all low- and moderate-income families to encourage them to develop savings and assets. A person who participated for 40 years in this savings program could accumulate over $266,000 -- enough to produce $24,000 a year of income in retirement. This proposal would cost $54 billion over 10 years.

  In an effort to encourage more small businesses to offer pensions for their employees, the President will also announce a proposal to provide a 50 percent tax credit for qualified contributions to employees' pensions. This provision would cost $17 billion over 10 years.

  Too Few Americans Are Saving for Retirement. Over two-thirds of Americans rely on Social Security as their principal source of retirement income, and 18 percent rely on Social Security as their only source of income. Seventy-three million American workers and their spouses are not covered by any employer-sponsored retirement plan. Existing tax incentives to save do little for hard-pressed working American families -- Americans with incomes in the bottom sixty percent get only 12 percent of the tax benefits for pensions.

  Retirement Savings Accounts Are Designed To Encourage and Reward Savings, Bring New People Into the Culture of Saving. Here's how they would work:

  Married Couples Could Contribute $2,000 to an RSA. When fully phased in after 2004, a single filer could contribute up to $1,000 into an RSA. For married couples, both spouses could make a $1,000 contribution - for a total of $2,000. These could be held in employer-sponsored retirement plans [emphasis added] or placed in private financial institutions. Individuals would have a broad range of investment options.

  Hard-pressed Working Families Would Get a 2:1 Match on the First $200 Invested. To encourage working families to start saving for retirement, the President's plan would provide a two-to-one match for the first $100 contributed by each person. For a couple, they could contribute $200 to their RSAs and the government would match with another $400, bringing the total account to $600. The match rate would phase out for incomes between $25,000 and $80,000. Single filers earning up to $12,500 would be eligible for a two-to-one match on up to $100, with the match rate phasing out from $12,500 to $40,000.

  Additional Incentives for the Next $1,800 Invested. For the next $1,800 contributed by a couple to an RSA, the government would provide a one-to-one match for families earning up to $25,000. This match phases down for families earning between $25,000 and $80,000. Individuals would qualify for a match on the next $900 invested.

  Withdrawal Rules. Certain withdrawals would be allowed, but only after 5 years and only for qualified purposes like paying for medical care, buying a house, or paying for college.

              Government Match. Families that do not have tax liability, like a typical family of four earning $25,000, do not benefit from any of the tax incentives to                 promote savings. In order to ensure that these families also have an incentive to save, the government match will come in the form of a tax credit to                  the employer or the financial institution for 100 percent of the matching contribution. This ensures that low- and moderate-income families will                  benefit from the match.

  Contributing Refunds -- and EITC Refunds. The President will ask the Department of the Treasury to study feasible options that would potentially simplify saving for millions of families by allowing them to have their tax refund, including EITC refunds, deposited directly into their RSA.

  What RSAs Would Mean for Families:

  A couple earning $25,000. If the couple contributed $200 to their RSA, they would get a $400 match for a total account of $600. The couple could contribute up to $2,000 to the account and be eligible for a government match of $2,000, bringing their total savings to $4,400.

  A single person earning $35,000. If the person invested $1,000 in their RSA, then the government would provide a match of $200. This could more than double the tax benefits that this person would get from making contributions to deductible IRAs.

  A couple earning $40,000. If the couple contributed $2,000 to their RSA, they would get a government match of $1,120. As a result, they would have $3,120 in their savings account.

  A couple earning $60,000. If the couple invested $2,000 in their RSA, then the government would provide a match of $400. This could more than double the tax benefits these employees currently get from making contributions to deductible IRAs.

  Accumulating Savings Over a Lifetime. Contributions to RSAs would accumulate tax-free. If a family consistently took advantage of RSAs, they could accumulate substantial assets to help maintain a healthy income in retirement. For example:

  A 25-year-old worker making $1,000 annual voluntary contributions and eligible for the maximum match every year would be saving $2,100 per year. As a result, he or she could accumulate over $266,000 by age 65 -- over a quarter of a million dollars in retirement savings.

  This accumulation could be enough to provide an annuity of over $24,000 per year -- an extra $2,000 per month in retirement income.

  A married couple fitting this description could accumulate over half a million dollars in retirement savings.

  The President Will Also Propose $17 Billion in Tax Incentives to Encourage Small Businesses to Offer Pensions to Their Employees. Currently only 18 percent of workers employed at organizations employing fewer than 25 workers have access to pensions through their current job. In an effort to expand pension coverage, the President will offer businesses with up to 100 employees a tax credit that will pay for 50 percent of the qualified contributions made by small businesses to the pension plans -- 401(k)-type or defined benefit -- of non highly-compensated employees for three years. Those plans would have to provide pension benefits equivalent at least 1 percent of pay for non-highly compensated employees who work at least halftime. Small employers would receive an additional credit for the administrative costs of starting a new plan and educating employees about retirement.

  
  Retirement Savings Accounts: Need

  
  Currently, Too Few Americans Have Enough Savings for A Secure Retirement. Because Americans are living longer it is more important than ever for them to build the wealth necessary for a secure retirement. But there are gaps in the system that leave too many American families behind.

  Social Security Provides a Core Foundation For Retirement, but It is Only One Leg of the Retirement Stool. While providing economic security for older Americans, Social Security was never meant to provide enough to maintain the standard of living individuals enjoyed during their working years. Social Security replaces just one-half of pre-retirement income for an individual who earned $17,000, and less than one-quarter of the income of an individual who earned $72,600. Yet Social Security is the only source of income for 18 percent of elderly Americans, and the principal source of income for 66 percent of elderly Americans.

  Pension Coverage Provides Additional Support, But Many American Workers Are Not Covered. Half of all American workers have no pension coverage at all through their current job. The situation is worse for lower and moderate-income workers and for workers in small businesses, where only 18 percent of people who work for organizations employing fewer than 25 workers have access to pensions through their current job.

  Fewer than 20 percent of workers have their own IRAs, and many do not contribute regularly.

  Fewer than one half of all workers are covered by 401(k) plans in their current job. While two-thirds of people with earnings of $75,0000 and over participate in 401(k)s, just 43 percent of those with earnings between $35,000 and $39,000 save for retirement through 410(k)s. (Data if from 1993.)

  While 91 percent of all families have some financial holdings, the median value of these holdings is just $13,000. The median value of financial assets of families headed by someone over age 65 is just $20,000.

  The Tax Incentives For Retirement Savings Help Many American Families, But the Tax Benefits are Skewed to the Better Off.

  Two-thirds of existing pension tax subsidies go to families with incomes in the top quintile, while just 12 percent go to families with incomes in the bottom sixty percent of the income distribution.

  Individual Development Accounts (IDAs) Have Been a Successful Model to Encourage Low-Income People to Save for Retirement.

  In 1992, Bill Clinton proposed establishing Individual Development Accounts (IDAs) to help low-income Americans save. President Clinton included IDAs in his 1994 Welfare Reform proposal. The 1996 welfare reform allowed states to use their block grants to set up IDAs and the FY 1998 budget established a five-year, $125 million demonstration program to create Individual Development Accounts for more than 50,000 people.

  For each $1 a low-income family deposits into an IDA, the administering agency provides a match of between $1 and $8. Households that are eligible either for Temporary Assistance for Needy Families (TANF) or the EITC are eligible to participate in IDA demonstration projects.

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