Cong. Bill Thomas (R-CA), Chairman of the House Ways and Means Committee was a strong advocate on the House side.

Cindie Moore with Gerri Madrid, Natl. Conf. of State Legislators.

Cindie Moore with Jeannine Markoe Raymond and Jerry Fox (WY)

President Signs Tax Bill into Law – Historic Number of Helpful Public Plan Changes

By Cindie Moore, Washington Counsel
(Photos taken at the White House just after the President signed the bill.)

NCTR and many other public and private groups were present when President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGATRRA) on June 7.  The Act contains the largest number of helpful changes for state and local government plans in recent memory.  Because of rain, the group could not convene on the White House grounds, but were accommodated in the East Room and nearby overflow rooms equipped with closed circuit televisions.   Also on hand were the Senate authors of the pension package, Charles Grassley (R-IA) and Max Baucus (D-MT), who at the time of the Act’s passage were the Chairman and Ranking Democrat respectively of the Finance Committee.  Their roles are now reversed because of Sen. Jim Jeffords of Vermont switch from Republican to independent affiliation. House and Senate GOP leaders and other prominent members, such as Rep. Rob Portman (R-OH) and House Ways and Means Committee Chairman, Bill Thomas (R-CA) also attended.

Highlights of EGATRRA include:

-Expanding pension portability for state and local government employees by allowing them to roll their pensions into other types of plans when they change employers and by permitting them to use 403(b)/457 funds on a pre-tax basis to purchase service credit.

-Eliminating burdensome rules, including the maximum exclusion allowance (MEA) applicable to 403(b)s.  (Note, we fought back an attempt in the final hours of EGATRRA’s consideration to delay the effective date until 2011.  The final effective date is the more helpful 2002.)

-Increasing retirement savings through higher annual limits, creating catch ups for those 50 and over (in addition to the existing 403(b) and 457 catch ups), and allowing “Roth” 401(k) and 403(b) (i.e., contributions would be made on an after-tax basis).

See a summary of the Act’s provisions applicable to state and local government plans.

What challenges do we face in implementing the bill?  States and localities may have to amend their pension codes.  For example, some retirement systems intend to use the portability provisions (which are permissive, not mandatory) and already have either a statute or some other authority that will allow them to do so.  Other systems would like to, but need authority to do so.   I am compiling examples of authority in various states’ statutes that allows retirement systems to begin using the portability provisions on their effective dates. 

What other issues need to be considered?

EGATTRA is a “Cinderella” bill because it has a sunset.  Its provisions and amendments do not apply to taxable, plan, or limitation years beginning after December 31, 2010 because of this year’s budget resolution, which limited the cost of EGATRRA to $1.35 trillion through 2011. A vote  by 60 senators would have raised the ceiling, but the Act’s negotiators concluded that they could not win the necessary number of votes.   We will look at the sunset’s effect on pensions.

President Bush greets well-wishers

Sen. Max Baucus (D-MT), at right, and Sen Charles Grassley (R-IA) pictured below, led the fight to get their pension reform bill (S.742) included in the tax bill.ax