Ways and Means Committee Approves Massive Tax Bill with Amendments: No Provisions Harmful to Government DC Plans Added
Senate Finance Committee Releases Tax Proposal Details: Takes Aim at Unique 457 Plan Features
by Susan J. White, NAGDCA Legislative Counsel and Paul V. Beddoe, NAGDCA Director of Government Affairs
On Thursday, November 9, legislation to overhaul the U.S. tax system moved forward in the House and was introduced in the Senate. While the House version largely left governmental defined contribution plans alone, the Senate version would repeal some unique features of 457 plans, including the exemption from the 10% penalty for early disbursements.
In the afternoon, the House Ways and Means Committee adopted a final package of amendments offered by Chairman Kevin Brady (R-Texas). The committee voted on party lines to send the measure to the full House for consideration. Over the course of the four days of debate, committee Democrats offered numerous amendments, none of which were approved.
As we reported last week, “Tax Cuts and Jobs Act” (H.R. 1) does not change the pre-tax contributions to defined contribution retirement plans–so-called Rothification–or other potential provisions which NAGDCA had argued were the most harmful to government defined contribution plans and participants. Language allowing in-service distributions from 457(b) plans at age 59 ½ was included.
Chairman Brady’s “manager’s amendment” repealed Sec. 3801 of the underlying bill which restricted nonqualified deferred compensation. NAGDCA had alerted the committee that the section appeared to introduce some technical ambiguity regarding 457 plans and asked them to clarify the provision. The deletion of the section resolves our concern.
Later in the evening, the Senate Finance Committee released legislative details of the “chairman’s mark” of the Tax Cuts and Jobs Act – that is the Senate version of the bill to overhaul the U.S. tax code, cutting taxes for individuals and businesses.
The draft proposed by Finance Committee Chairman Orrin Hatch (R-Utah) does not impose Rothification.
The chairman’s mark does, however make some changes to governmental defined contribution plans which NAGDCA is concerned will be unfair and confusing to plan participants and difficult, if not impossible, to administer within the aggressive implementation time frame. Effective January 1, 2018, the bill would:
- Eliminate the exemption for the 10% early distribution tax for governmental 457(b) plans.
- Eliminate the special 403(b) and 457 catch-up rules.
- Count 457(b) contributions toward the 415 limit.
- Subject 403(b) and governmental 457(b) plans to the private sector employer aggregation rules for purposes of the limits on contributions.
- Coordinate the $18,000 limit on 457(b) plans with the same limit on 401(k) and 403(b) plans, so that an employee would get a single $18,000 limit under any combination of the three plans.
The Finance Committee will begin formally considering the proposed legislation on November 13.
We will continue to work with Congress and to keep you updated. NAGDCA encourages its members to write to their Senators and Representatives to convey our concerns. If you have questions or comments about this legislation, please direct them to NAGDCA Headquarters so that we can review them. Although many details may not be left until and unless it becomes law, and the agencies issue implementing regulations, NAGDCA member questions are very helpful as we move forward, engaging members of Congress and their staff.
To download a template letter to members of Congress, click here.
For the legislative text of H.R. 1, click here.
For the legislative text of the Manager’s Amendment, click here.
For the Ways and Means Committee majority staff section-by-section analysis, click here.