26 July 2017

Washington Update – Retirement Plan Issues On The Horizon

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Message from the President of Austin Capital 

Taken from reports provided by the American Society of Pension Professionals and Actuaries [ASPPA] 

Since January  

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 and spending.

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.

In 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.

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