Senate To Combine Pension, Tax Reform Issues
The bill reportedly includes several pension reform measures from the Senate’s pension reform bill (S. 742), including the increase in the contribution limits for 401(k) plans and individual retirement accounts. However, the price tag is only $40 billion, rather than the $81 billion estimated in the original draft. Consequently, it would appear that some of the projected benefits will be less – or will come later – than originally projected.
HR 10, the Comprehensive Retirement Security and Pension Reform Act, was passed by the House on May 2 by a margin of 407 -24. It carries a $51 billion price tag.
The bipartisan bill was worked out between Senate Finance Committee Chairman Charles Grassley (R-Iowa) and Senator Max Baucus (D-Montana), the ranking Democrat on the Finance Committee.
Similar to a provision rejected in the House version, this bill would offer a nonrefundable credit to low- and middle-income savers of up to 50% of contributions up to $2,000 to an IRA, Roth IRA, 401(k) plan, 403(b) plan, 457 plan, or a savings incentive match plan for employees (SIMPLE).
The plan also would provide a nonrefundable income tax credit for new small business plans equal to 50% of matching contributions to accounts of rank-and-file workers, as well as a temporary tax credit to compensate new small business plan sponsors for start-up costs.
The retirement provisions are expected to contain many of the items contained in the Retirement Savings and Security Act of 2001 (S. 742) as well as the House version (HR 10), including:
- A phased increase in the contribution limits for 401(k), 403(b) and 457 plans to $15,000/year
- Increased IRA contribution limits to $5,000/year
- Catch-up contributions for workers age 50 and older
- Reduced vesting from five years to three years
- Provisions to enhance pension portability.
Sen. Charles Grassley (R-IA), Chairman of the Finance Committee and cosponsor of S. 742, will issue a “mark” or summary of the tax bill, according to the American Benefits Council. That Chairman’s mark will form the basis for debate when the Finance Committee formally considers the tax legislation scheduled for tomorrow (May 15).
However, senators are expected to offer a number of amendments during the Senate Finance Committee markup. According to BNA, the proposal calls for:
- an across-the-board cut in marginal tax rates, including the retroactive establishment of a new 10% tax bracket effective as of Jan. 1, 2001
- increase the child tax credit to $600 from $500, retroactive to January 1
- an easing of taxes for married couples starting in 2005
- a doubling of the $500-per-child tax credit effective in 2010
- repeal of the estate tax by 2011 while leaving the gift tax in place
- increase the limit on contributions to education savings accounts from $500 to $2,000, and expand these accounts to cover costs associated with primary and secondary school.
- removes the limit on deductibility of student loan interest
- makes distributions from prepaid college savings plans and tuition plans tax-free
- permanently establishes the tax-free treatment of employer-provided educational assistance.
Grassley and Baucus say their proposal would provide more benefits to lower- and middle-income taxpayers than the Bush administration plan, but Senate Minority leader Tom Daschle (D-SD) still believes the plan is still too skewed to the wealthy.
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