2015 - NCPERS Docs/Annual Conference/2015 PPT's... · Amend IRC § 104(a) ... PLR requests to allow...

2015

Williams & Jensen, PLLC

Yogi Berra

I just want to thank everyone who made this day necessary


Key Federal Legislation

Public Safety-Specific

Annuity Accumulation Plan

PEPTA

Employer Pick Up

Tax Reform


Public Safety Legislation

Federal tax treatment of survivor benefits

Expansion of the exemption for public safety from the tax penalty on early withdrawals, IRC § 72(t)(10)


S. 322, Sen. Kelly Ayotte, R-NHH.R. 606, Rep. Erik Paulsen, R-MN

Clarify that state and federal-based survivor benefits of public safety officers are tax-exempt, if in the line of duty (direct and proximate cause)

Passed Senate Finance Committee in February

Amend IRC § 104(a)


H.R. 4634 (113th) Rep. Dave Reichert, R-WA

Expansion of IRC §72(t)(10) exemption

Would include (1) federal public safety employees and (2) distributions from DC plans

Referred to House Ways & Means Committee

S. 969, Sen. Pat Toomey (R-PA)


Annuity Accumulation Plan

S. 1270 (113th), Sen. Orrin Hatch, R-UT

Title I – Public Pension Reform

Sponsor “may” establish Annuity Accumulation Retirement Plans (1st optional aspect)


Annuity Plan (cont.)

Individual deferred fixed annuity contracts “may” be purchased not less frequently than annually

However, the plan “may” allow the employer to reduce the contribution percentage or not make any contributions for any period for all employees (2nd optional aspect)



No contributions may be made under the plan other than employer contributions to the annuity plan (aspirational ceilings of 30% for public safety; 20% for all others)

No employee contributions are allowed

Runs counter to current practice where vast majority of state and local DB plans are contributory



Concerns:

Replacement income

Survivor and disability benefits (public safety)

New costs: (1) aggregation costs (outside provider or sponsor/fund); (2) transition costs (similar to DC to DB); and (3) new determination letter.



Further Concerns:

Impact on existing plans (does nothing for sustainability of current plans)

Financial backstop (state guaranty associations)


Public Employee Pension Transparency Act (PEPTA)

H.R. 1628 (113th), Rep. Devin Nunes (R-CA) S. 779 (113th), Sen. Richard Burr (R-NC)

For the first time state and local governmental plan sponsors would be required to report their plan’s funded status to the federal Treasury Department


PEPTA (cont.)

• Two annual reports if the plan does not report currently using FMV or the same method as (2) below

Based on Two Different Sets of Numbers:1) Report based on current assumed rate of return2) Supplemental report based on U.S. Treasury obligation yield curve

• Other projections and information required


The Hammer

Loss of Ability to issue

federal tax–exempt bonds


Employer Pick UpThe Issue Interpretation of Revenue Ruling

2006-43 on IRC §414(h)(2) pick ups

PLR requests to allow existing employees to elect between current and new DB tier

View that it is a “cash or deferred arrangement” = choice to get more take home pay

RR 2006-43 plugs into 1.401(k)-1(a)(1) – no CODAs in pick up situation

Tension Promoting retention of

DB plans through flexibility

Clear path to erode underlying DB benefits

Two Approaches Regulatory

Legislative


H.R. 205 (113th)

Amendment to IRC § 414(h)(2): “(B) TREATMENT OF ELECTIONS BETWEEN ALTERNATIVE

BENEFIT FORMULAS.—

“(i) IN GENERAL.—For purposes of subparagraph (A), a contribution shall not fail to be treated as picked up by an employing unit merely because the employee may make an irrevocable election between the application of two alternative benefit formulas involving the same or different levels of employee contributions.”


H.R. 205 (cont.)

“(ii) APPLICATION TO EXISTING EMPLOYEES.–Clause (i) shall be applied without regard to whether the employee is already covered by one of the benefit formulas referred to therein.”

Introduced by Rep. Loretta Sanchez (D-CA)


Tax Reform

Threshold Issues

Business or Individual or both

Revenue neutral

Economic growth


SFC Chairman Hatch’s Statement

“…as part of the unending effort on Capitol Hill to find more revenue to pay for increased spending, some have proposed reducing the allowed contributions to 401(k) and IRAs.

That, in my view, would be both short-sighted and foolish.”


Tax Reform and Public Pensions

1) Any of preceding bills (positive and negative)

2) 457(b) and 403(b) where special rules apply


Contact Information

Tony RodaPartner

Williams & Jensen, PLLC701 8th Street, NW

Suite 500Washington, DC 20001

(202) [email protected]


2015 - NCPERS Docs/Annual Conference/2015 PPT's... · Amend IRC § 104(a) ... PLR requests to allow...

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