I am pleased to report that this morning the Senate Finance Committee unanimously approved the Retirement Security and Savings Act of 2000. This legislation, like the pension reform legislation which overwhelmingly passed the House this past July, contains numerous ASPA-supported provisions designed to improve and expand the private pension system. Below is a summary of some of the more significant provisions included in the legislation.

The Retirement Security and Savings Act is currently scheduled to be considered by the full Senate the third week in September. As with the vote in the House, we need your help to ensure this important legislation passes the Senate by a wide margin. At our web site, we have set up an easy mechanism allowing you to e-mail or fax your senators to let them know that voting yes for this legislation will enhance the retirement security of all Americans. It should take you only a few minutes. The web address is http://www.aspa.org/govpages/ASPAgacaction.htm.

Please take a moment to let your senators know about the importance of this legislation. It will make a difference. Thanks in advance for your assistance.

Brian Graff, Esq.
ASPA Executive Director

Click here to link to ASPA page: http://www.aspa.org/govpages/ASPAgacaction.htm

Provisions of the Retirement Security and Savings Act

Limits on Retirement Plan Contributions and Benefits The bill would raise all of the significant dollar limits as follows:

• 401(a)(17) compensation limit to $200,000, and then indexed in $5,000 increments.
• 415(b) annual benefit limit to $160,000, and then indexed in $5,000 increments.
• 415(c) annual dollar limit indexed in $1,000 increments.
• 402(g) and 457 elective deferral limits to $15,000 over five years in $1,000 increments and then indexed in $500 increments.
• SIMPLE elective deferral limit to $10,000 over four years in $1,000 increments, and then indexed in $500 increments.
• IRA Limits would also be increased from $2000 to $5000 over several years.

Catch-up Contributions for Older Workers
Individuals who are age 50 or older would be allowed to make an additional contribution to a 401(k), 403(b), 457, or SIMPLE, equal to 50% of the annual elective deferral limit. The amount of the catch-upcontribution would not be subject to nondiscrimination testing (i.e., ADP and ACP testing).

Participant Loans for Small Business Owners
The prohibited transaction rules would be modified to allow for participant loans to sole proprietors, partners, and subchapter S corporation shareholders.

Modifications of Top-Heavy Rules
A number of changes would be made here:

• The definition of "key employee" would be modified to delete the "top 10 owner" rule, provided that an employee will not be treated as a key employee based on his/her officer status unless the employee earns more than $85,000, and would eliminate the four-year look-back rule for identifying "key employees."
• Family attribution in determining who is a key employee would be repealed.
• Matching contributions would count toward satisfying the top-heavy minimums.
• The matching contribution 401(k) plan safe harbor would be deemed to satisfy the top-heavy rules.
• The five-year look-back rule applicable to distributions would be shortened to one year. However, the five-year look-back rule would continue to apply to in-service distributions.
• A frozen top-heavy defined benefit plan would no longer be required to make minimum accruals on behalf of non-key employees.

Roth 401(k) and 403(b) Plans
401(k) and 403(b) plans could permit participants to elect a tax treatment for their deferrals similar to Roth IRA contributions. Such after-tax contributions would be tested along with pre-tax deferrals as part of the ADP test. The 402(g) limit would apply to the combined amount of pre-tax and after-tax Roth 401(k) or 403(b) contributions.

Because of their special tax treatment (i.e., distributions, including earnings, exempt from tax), these contributions would have to be accounted for separately. Further, like Roth IRAs, in order to receive this special tax treatment, five years must elapse from when a participant first makes a Roth 401(k) or 403(b) contribution to when a distribution is made. Roth 401(k) and 403(b) contributions (and earnings) can be rolled over to a Roth IRA.

Repeal of 25% of Compensation Limitation
The 25% of compensation limitation under 415(c) would be repealed. Instead, the limitation would be 100% of compensation. The dollar limitation would also still apply.

Exclusion of Elective Deferrals from Deduction Limit
Elective deferrals would no longer be considered employer contributions for purposes of the section 404 deduction limits.

Definition of Compensation for Purposes of Deduction Limits
The definition of compensation for purposes of the deduction rules would include elective deferrals treated as compensation under section 415.

Expanded Portability

• The bill would permit rollovers from the various types of defined contribution arrangements (i.e., 401(k), 403(b), and governmental 457) to each other without restriction.
• Rollover notice rules would be extended to distributions from governmental 457 plans, and distributions from such plans would be subject to the 10% early withdrawal tax to the extent the distribution consists of amounts attributable to rollovers from another type of plan.
• After-tax employee contributions could be included in an eligible rollover distribution to a qualified plan or an IRA.
• Further, taxable IRA amounts (whether or not from a conduit IRA) could be rolled over to a qualified plan, 403(b) plan, or governmental 457 plan. Also, surviving spouses would be permitted to roll over distributions to a qualified plan, 403(b) plan, or governmental 457 plan.
• Finally, IRS would be given authority to extend the 60-day rollover period where failure to comply is due to casualty, disaster, or other events beyond the reasonable control of the individual.

Repeal Multiple Use Test
The bill would repeal the multiple use test.

Credit for Low-Income Savers
Eligible lower income taxpayers would be eligible for a non-refundable tax credit of up to 50% on up to $2,000 in contributions to an IRA, 401(k), 403(b), SIMPLE, SEP or 457 plan.

Small Business Tax Credit for Qualified Retirement Plan Contributions
Small businesses, with 50 employees or less and who previously did not maintain a retirement plan, would be eligible for an annual tax credit equal to 50% of employer contributions with respect to NHCEs, up to a maximum of 3% of compensation. To be eligible, the plan would have to provide at least a 1% of compensation nonelective contribution, and the plan would have to subscribe to either a 3-year cliff or 5-year graded vesting schedule. Plans utilizing permitted disparity and cross-tested plans would not be eligible. The credit would be available for the first three years of the plan.

Small Business Tax Credit for New Retirement Plan Expenses
Small businesses with 100 employees or less would be eligible for an annual tax credit of 50% on up to $1,000 of administrative costs for the first three years of a new plan.