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January 18, 1997

TO: Members of the Executive Committee and Legislative Committee

FROM: Frank Ready, Chair, Legislative Committee
Cindie Moore, Washington Counsel

RE: Results of NCTR 1997 Legislative Mini-Survey

We appreciate the excellent response of NCTR members to the survey. Over half of the NCTR retirement system members returned their surveys. A copy of the survey is attached.

Legislative Priorities Identified

Here are the priorities as identified by the respondents:

1st Making permanent the current moratorium of the application of the nondiscrimination rules to state and local plans (71)

2d Opposing taxation of pension funds (77)

3d Exempting purchase of service credit from the defined contribution limits of IRC Section 415 (109)

4th Working against legislation that would reduce state regulation of pension plans while increasing federal regulation (121)

5th Supporting voluntary participation of state and local government employees in social security and opposing mandatory participation (136)

Last year, the top priority was relief from the Section 415 defined benefit limits, followed by opposition to taxation on pension funds and relief from the nondiscrimination rules. With the 415 defined benefit issue resolved, nondiscrimination moved into the top spot. Opposition to taxation remained in second place and increased federal regulation in fourth place.

The social security issue, which was not on the survey last year, was the survey's hot button issue. One retirement system emphasized its strong opposition to mandatory social security coverage, while another felt that mandatory coverage "may be necessary."

Other Legislative Issues

These other legislative issues were raised by NCTR members:

Need to balance the federal budget; and

Relief from the IRC Section 401(a) qualification requirements.

Again, we'd like to thank everyone who participated in the survey.

Attachment

NCTR 1997 LEGISLATIVE MINI-SURVEY
(Please place your number ranking in the blank space before each paragraph -- "1" means most important and "5" means least important.)

Name of System _____________________________________________

_____ Exempting Purchase of Service Credit from the Defined Contribution (DC) Limits of IRC Section 415. The Section 415 relief enacted in the Small Business Job Protection Act of 1996 dealt with the defined benefit limits that conflicted with state and local plans, but did not address the DC limits under Section 415 that may impair an employee's right to purchase service credit. Under an interpretation by Treasury and IRS, a retirement system member may purchase service credit in an amount no greater than $30,000 or 25% of his/her compensation (whichever results in the lower amount to the member). These limits may interfere with an employee's right under state law to purchase the entire amount of service credit to which he/she is eligible. Purchase of service credit provides pension portability for state and local government employees.

____ Opposing Taxation of Pension Funds. Congress has debated a variety of measures that would tax pension funds. Senator John Kerry (D-MA) proposed imposing a "user fee" on large entities that use electronic fund transfers. Former Senator Nancy Kassebaum (R-KS) introduced several years ago S. 1654, which would have imposed a tax on short term gains of pension funds. These proposals, if enacted, would have cost NCTR members millions of dollars. Driving the issue in 1997 is the possibility of an agreement to balance the federal budget by 2002. Pension plans hold $4 trillion in assets ($1 trillion of which is attributable to public plans), so they are a tempting target as Congress and the Administration search for revenue to reach a balanced budget.

_____ Make permanent the current moratorium of the application of the nondiscrimination rules to state and local plans. For the greater part of the last 20 years, Treasury has voluntarily granted state and local plans a temporary moratorium on the application of the rules. The moratorium expires in 1999 and the plans will have to comply with the rules unless Congress passes remedial legislation. Congress enacted these complicated rules out of fear that highly compensated employees (HCEs) will design pension plans that provide them with generous benefits and little or nothing for the rank and file workers. State and local government plans face the highest level of public oversight that prevents abusive plan design. The plans are approved by a legislature which ensures electoral accountability to the voters and media scrutiny. Senators Hatch (R-UT) and Conrad (D-ND) and Representatives Portman (R-OH) and Cardin (D-MD) authored a measure in 1996 to make permanent the temporary moratorium that would relieve state and local plans of having to comply with these cumbersome, costly, and complex rules (S. 2047 and H.R. 4099, respectively). We expect them to re-introduce the bills shortly.

_____ Supporting Voluntary Participation of State and Local Government Employees in Social Security and Opposing Mandatory Participation. The Social Security Advisory Council is expected to release shortly its recommendations for reforming Social Security's financing. Published reports indicate that the Council members are divided into three camps on how to achieve the change. One issue they agree on is mandatory Social Security coverage of newly hired state and local government workers. Their reason for agreement is strictly financial; such a mandate would cost both the states and localities as well as their employees $2 billion a year.

_____ Working Against Legislation that would Reduce State Regulation of Pension Plans While Increasing Federal Regulation. In 1995, Rep. Bob Andrews (D-NJ) introduced H.R. 1683, the Public Employee Pension Plan Liability Act of 1995 (PEPPLA). PEPPLA was somewhat different from PEPPRA and PERISA in that it did not cover reporting and disclosure requirements, nor did it have a federal fiduciary duty. Instead, it would have allowed a federal lawsuit against public plan administrators for failure to meet the terms of the plan. It would have also authorized a "qualified review board" to review changes in employer contributions as well as other modifications affecting state and local pension plans. The House Economic and Educational Opportunities Committee voted it down and no further legislation was considered during the session in either House of Congress. It is unclear whether Congress will renew these efforts in 1997, especially with the drafting of the Management of Public Employee Retirement Systems Act (MPERSA) by the National Conference of Commissioners on Uniform State Laws.

Please list any other issue or issues that you think should be a legislative priority.