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.

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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.