Portman, Cardin Contemplate RMD Relief

August 15, 2002 (PLANSPONSOR.com) - At a time when more and more workers are contemplating delayed retirements, noted Washington pension protagonists are said to be considering new realities for pension distributions.

Representatives Rob Portman (R-Ohio) and Benjamin Cardin (D- Maryland) are proposing to overhaul the current minimum-distribution rules that require workers to begin withdrawing their pension savings when they reach age 70-1/2 – or else suffer severe penalties.

Longer, More

Citing a Portman aide, Dow Jones said the pension champions are considering the possibility of raising the minimum-distribution age to 75 – and perhaps excluding as much as $300,000 in accumulated savings from the minimum-distribution rules.

At a time when concerns abound that workers will be able to save enough for retirement, a requirement to cash out those savings seems oddly disconnected with other legislative initiatives that have focused on ensuring that those funds aren’t liquidated prematurely. 

Cost Concerns

Not surprisingly, with many once again chafing about projected budget deficits, a significant barrier to any change in the rules would be the cost of postponing income tax receipts on those distributions.  Dow Jones notes that an earlier version of the proposal cost $41 billion over 10 years – and while recent modifications to the required minimum distribution (RMD) rules would lessen the impact, the Portman aide acknowledged that a change will be “fairly expensive.”

A recent bill by a Representative Jim Saxton (R-New Jersey) to strike the law requiring that Americans start withdrawing money from their Individual Retirement Accounts (IRA) by age 70 ½ won’t extend to 401(k) participants – specifically due to cost concerns.

In fact, the current rules seem better designed for a time when workers could count on working only until age 65 – and didn’t have to worry about living for another 20-25 years in retirement.