Pomeroy Pushes Annuity Distribution Tax Break

June 13, 2003 (PLANSPONSOR.com) - Workers who take pension benefits in an annuity would be allowed to shield $3,000 of that money from federal income tax under a new proposal in the US House of Representatives.

>Representatives Earl Pomeroy (D-North Dakota) and Johnny Isakson (R-Georgia), who introduced the bill, said the tax provision represents an incentive for workers to make retirement savings last longer through annuities, according to Washington-based legal publisher BNA.

>The Pomeroy-Isakson bill isn’t the only proposal now before the House to deal with the annuity tax issue. A more limited version, which includes a $2,000-exclusion and limits the tax break to those making less than $90,000 was included in HR 1776    – a sweeping pension reform bill introduced by pension activists Representatives Rob Portman (R-Ohio) and Ben Cardin (D-Maryland) (See  Unfinished Business, Regulatory Relief Top Portman/Cardin Bill ).

Portman and Cardin both have said the cost of their bill will need to be trimmed before facing a mark up in the House Ways and Means Committee, which is expected shortly. Scoring of some of the provisions in previous Congresses suggested the bill as introduced would cost about $112 billion over 10 years.

It is unclear what provisions from the bill would be dropped to meet cost targets, though Portman has said that provisions taking precedence include those that would accelerate increases in how much tax-deferred money could be contributed to pension accounts and postpone the age at which distributions must begin.

>Pomeroy told a news conference that if an annuity tax provision isn’t included in the final version of the latest Portman-Cardin bill, he would try to attach the measure to another pension-related tax proposal that would establish two new savings vehicles for retirement and other financial goals. Retirement Savings Accounts (RSA) and Lifetime Savings Account (LSA) would include more than double the tax deferral and none of the income limits of current Roth individual retirement accounts. Pomeroy has opposed the RSA-LSA bill (See    ERSAs Bear Major Changes for Plan Sponsors ).

Pomeroy said in a statement that Congress has gone to great lengths to provide incentives for workers to accumulate retirement savings, but has come up short on ways to help workers manage risks to their retirement savings taken as a lump-sum distribution. Those risks include making savings last through an unpredictable lifespan following retirement, downturns in the market, and inflation.

“For years, the federal government has recognized its duty to assist American families in planning for a financially secure retirement. Saving for the long term is extremely important, but assets must also be managed properly after retirement if they are to last a lifetime,” Pomeroy said in the statement.