Message from the
President of Austin Capital
Taken from reports
provided by the American Society of Pension Professionals and Actuaries [ASPPA]
The 113th Congress got fully underway in late January when
the so-called “fiscal cliff” at the turn of the year was averted with the
passage of the American Taxpayer Relief Act (“ATRA”). This legislation
increased taxes for individuals making $400,000 a year or more and couples
making $450,000 a year or more.
It also set a new “budget baseline,” which will play heavily
in any tax reform legislation. The good news is that this Act does not reduce
the tax incentives for qualified retirement plan contributions but families
earning more than $300,000 ($250,000 for singles), but less than $450,000, will
not see marginal rates rise, but will be subject to a phase out of personal
exemptions (PEP) and itemized deductions (PEASE).
There were two retirement savings provisions in the Act:
• Expansion of
In-plan Roth Conversions. The requirement that an account balance can only be
converted to Roth if the amount is otherwise distributable is being eliminated.
A 401(k), 403(b) or 457(b) plan which permits Roth elective contributions can
allow any amount in a non-Roth account to be converted to a Roth account. This
is a permanent provision, effective for transfers after December 31, 2012.
• Extension of IRA
Charitable Rollovers. The $100,000 IRA charitable rollover provision is being
extended through 2013. A special rule permits a rollover during January of 2013
to be treated as a 2012 rollover. Also, individuals who took a distribution in
December of 2012 will be able to contribute that amount to a charity and count
it as an eligible charitable rollover (provided it otherwise meets the
requirements for an eligible charitable rollover).
Congress then took another step forward in reordering the
fiscal deck as the country moved closer to impending showdowns on government
spending and taxes in the spring of 2013. The Senate and the House passed
legislation which required both Houses of Congress to pass budget resolutions
in their respective chambers by April 15, 2013. It is important to note that
even this temporary measure addressing fiscal issues engendered significant
opposition from Congressional Republicans in both chambers. The votes on this
bill represent a clear indication of the challenges that lay ahead for the
political leaders in both parties in the upcoming fiscal negotiations on taxes
Finally, after both Houses passed very differing views on a
government spending and revenue blueprint, they each passed a “Continuing
Resolution” that funds all federal departments and agencies for the fiscal year
2013 that will end on September 30, 2013.
The next deadline for a potential budget showdown will be
when the government’s ability to borrow runs out, also called the debt ceiling.
Current estimates are August or September of this year. The last time House
Republicans threatened to hold this hostage, it was a public relations
disaster. Given that they seem to have hit their stride with the recent budget
cuts taking place, chances are they won’t make a similar mistake, but there are
grumblings from rank and file House Republicans that they want to pass a debt
ceiling increase with changes to entitlement programs. President Obama has been
firm that he will not deal on this piece of legislation.
President Obama did give tax reform prominence in his State
of the Union address. He stated: “Now is our best chance for bipartisan,
comprehensive tax reform that encourages job creation and helps bring down the
deficit. The American people deserve a tax code that helps small businesses
spend less time filling out complicated forms, and more time expanding and
hiring; a tax code that ensures billionaires with high-powered accountants
can’t pay a lower rate than their hard-working secretaries; a tax code that
lowers incentives to move jobs overseas, and lowers tax rates for businesses
and manufacturers that create jobs right here in America. That’s what tax
reform can deliver. That’s what we can do together.” It remains to be seen, however, if President
Obama will commit the political capital necessary to get such legislation over
the finish line.
Other Key Events
In February, the Senate Health, Education, Labor, and
Pensions (“HELP”) Committee held a well attended hearing entitled: “Pension
Savings: Are Workers Saving Enough for Retirement?” During the hearing, the
Committee Members responded favorably to the multiple proposals from the
witnesses to improve the employer based retirement savings system. Discussion
centered on simplifying the regulations and increasing the tax incentives so
more businesses sponsor qualified retirement plans and incentivizing certain
plan designs, like stretching the employer matching contribution percentages to
encourage participants to save more. In short, the tone and substance of the
hearing was encouraging for advocates of the employer based retirement system.
In February, ASPPA’s
Judy Miller participated on a panel that briefed Congressional staffers on the
instrumental role that the retirement tax deferral plays in incentivizing small
business owners to sponsor qualified retirement plans. The briefing was
facilitated by the House Small Business Committee. The panelists emphasized the
progressivity of the retirement plan tax incentive and that if employers choose
not to sponsor plans; it is the rank and file workers who will be hurt the
most. The briefing was well attended, and we will continue to follow up with
staff in the weeks ahead.
the meantime, the Ways & Means Committee, which has jurisdiction over the
Internal Revenue Code in the House of Representatives, has been laying the
ground work to create tax reform
legislation. Chairman Dave Camp (R-MI, 4th) and Ranking Member Sander Levin
(D-MI, 9th) formed eleven tax reform working groups within the Committee to
examine different aspects of the Internal Revenue Code. The groups, each led by
one Republican and one Democratic committee member, are tasked to review
current tax law and compile research from various stakeholders in the
designated issue area, with the goal of producing a report for the full
Committee on suggestions for reform. Representatives Pat Tiberi (R-OH, 12th)
and Ron Kind (D-WI, 3rd) are leading the Pensions/Retirement tax reform working
group. ASPPA submitted comments to the work group on April 15 2013.