While the bill still includes many of the pension reform provisions from S. 742, the Retirement Security and Savings Act, cost cuts made to fit within the framework of the overall tax bill would stretch the implementation of a number of key provisions.
As noted previously ( Senate to Combine Pension, Tax Reform Issues ), bill co-sponsors Sens. Grassley (R-Iowa) and Baucus (D-Montana) scaled back the cost from $81 billion over 10 years to $40 billion over that period.
Most of the cost savings came from phasing in reforms with revenue costs over a much longer period of time. For example, the increase in contribution levels from the current $10,500 would be phased in, beginning with an increase to $11,000 next year, and $500/year every year after that, until 2010 when it finally reaches $15,000. The original Senate bill (S. 742) would have raised the limit to $15,000 in 2006.
Other extended implementations include:
- maximum annual addition limits would only be raised to $35,000 or 50% of compensation through 2010, when it would increase to $35,000 or 100% of compensation, rather than an immediate increase to $35,000 or 100% of compensation, as under the original bill
- the annual defined benefit limit would not be raised to $160,000 until 2005, rather than immediately as under S. 742. The limit would be raised to $150,000 in 2002, where it would remain until 2005.
- the catch-up contributions for those over age 50 will be limited to $500/year through 2004, bumped up to $1,000/year in 2005, to $2,000/year in 2007, $3,000/year in 2008, $4,000/year in 2009 and $7,500/year beginning in 2010. The original bill would have allowed additional elective deferrals of 10% of the maximum elective deferral amount allowed in 2002, 20% the year after that and 50% for 2006 and thereafter.
- maximum IRA contributions would not reach $5,000 until 2011, rather than in 2004 as in the original Senate bill. They would be capped at $2,500 through 2005, increasing to $3,000 in 2006, $3,500 in 2008 and $4,000 in 2010.
According to the American Benefits Council the only major provisions of S. 742 dropped during the process were:
- an increase in eligibility levels for Roth IRA contributions and conversions by joint tax filers
- the speeding up of scheduled increases in income limits for deductible IRA eligibility
Adding to the cost of the bill are several provisions similar to those rejected in the House version ( Pension Reform Sails Through House ), including
- a nonrefundable credit to low- and middle-income savers
- an income tax credit for new small business plans
- a temporary tax credit to compensate new small business plan sponsors for start-up costs.
Those provisions were challenged by Representative Rob Portman (R-Ohio) as adding $46 billion to the House version, when they were presented in the House on May 2.
The full Senate Finance Committee is scheduled to formally review the tax legislation, now dubbed the Restoring Earnings to Lift Individuals and Empower Families (RELIEF) Act, today.
– Nevin Adams email@example.com
A full copy of the Chairman’s Mark is at http://www.house.gov/jct/x-40-01.