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August 6, 1999

TO: Retirement Administrators/CEOs

FROM: Cindie Moore, NCTR Washington Counsel

RE: NEWS FLASH – Final Tax Bill Includes Many Public Pension Items Congress approved on August 5 public pension items in H.R. 2488, the Taxpayer Refund and Relief Act of 1999. H.R. 2488 is a 10-year, $792 billion package that contains a multitude of provisions, including a one percentage point cut in all income tax rates.

Here is a QUICK overview of items of major interest to NCTR members:

• Annual dollar limits increased for DB plan benefits to $160,000 and for DC plan contributions to $40,000 (Section 1201);
  
  
• Compensation limit increased to $200,000 (Sec. 1201);
  
  
• Annual elective deferrals (i.e., annual limits for 401(k)s and 403(b)s) increased to $11,000 in 2001, increased in $1,000 increments to 2005 (at which point, amount is $15,000), and indexed thereafter (Sec. 1201);
  
  
• Annual contribution limit for 457s increased in same manner as for elective deferrals (Sec. 1201) (finally, fair treatment for 457 plan participants!);
  
  
• Annual percentage limit for DC plans (now 25%) and for 457s (now 33 1/3%) increased to 100% and the exclusion allowance for 403(b)s repealed (Sec. 1222);
  
  
• Rollovers to and from 403(b)s and 457s (Sec. 1231); and
  
  
• Authority for governmental employees to use 403(b) and 457 money to purchase service credit (Section 1237).

Final notes: 1) the DB and DC dollar limits and the comp limit are indexed; 2) the provisions listed above are generally effective for years after December 31, 2000; 3) because of a Senate budget rule, these provisions expire on September 30, 2009; and 4) other items in H.R. 2488 also affect public pension plans – this is just a summary.

Although the President is expected to veto H.R. 2488, he and Congress may negotiate legislation in the Fall that contains a tax cut (including, hopefully, the pension provisions listed above), Medicare reform, and (possibly, though not likely) Social Security re-structuring.

CONTACT ME AT 703-534-9770 FOR A COPY OF THE BILL TEXT or click on text for a text version or for the pdf version of the bill from the US Government server. The pdf version is preferred but you must have acrobat reader to view it.