[House Report 107-733]
[From the U.S. Government Publishing Office]
107th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 107-733
======================================================================
RETIREMENT SAVINGS AND SECURITY ACT OF 2002
_______
October 10 (legislative day, October 9), 2002.--Committed to the
Committee of the Whole House on the State of the Union and ordered to
be printed
_______
Mr. Thomas, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 5558]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 5558) to amend the Internal Revenue Code of 1986 to
accelerate the increases in contribution limits to retirement
plans and to increase the required beginning date for
distributions from qualified plans, having considered the same,
report favorably thereon with an amendment and recommend that
the bill as amended do pass.
CONTENTS
Page
I. Summary and Background...........................................3
A. Purpose and Summary................................. 3
B. Background and Need for Legislation................. 3
C. Legislative History................................. 3
II. Explanation of the Bill..........................................4
A. Acceleration of Increases in IRA Contribution Limit. 4
B. Acceleration of Scheduled Increases in Pension Plan
Contribution Limits................................ 4
C. Updating of the Minimum Distribution Rules.......... 6
III. Votes of the Committee...........................................8
IV. Budget Effects of the Bill.......................................9
A. Committee Estimate of Budgetary Effects............. 9
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 11
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 11
V. Other Matters To Be Discussed Under the Rules of the House......12
A. Committee Oversight Findings and Recommendations.... 12
B. Statement of General Performance Goals and
Objectives......................................... 12
C. Constitutional Authority Statement.................. 13
D. Information Relating to Unfunded Mandates........... 13
E. Applicability of House Rule XXI 5(b)................ 13
F. Tax Complexity Analysis............................. 13
VI. Changes in Existing Law Made by the Bill, as Reported...........13
VII. Dissenting Views................................................19
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Retirement Savings and Security Act of
2002''.
SEC. 2. ACCELERATION OF INCREASES IN IRA CONTRIBUTION LIMIT.
(a) Deductible Amount.--Subparagraph (A) of section 219(b)(5) of the
Internal Revenue Code of 1986 is amended to read as follows:
``(A) In general.--The deductible amount shall be
$5,000.''.
(b) Catch-Up Amount.--Subparagraph (B) of section 219(b)(5) of such
Code is amended to read as follows:
``(B) Catch-up contributions for individuals 50 or
older.--In the case of an individual who has attained
the age of 50 before the close of the taxable year, the
dollar amount in effect under paragraph (1)(A) for such
taxable year (determined without regard to this
paragraph) shall be increased by $1,000.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2002.
SEC. 3. ACCELERATION OF SCHEDULED INCREASES IN PENSION PLAN
CONTRIBUTION LIMITS.
(a) Elective Deferrals.--Subparagraph (B) of section 402(g)(1) of the
Internal Revenue Code of 1986 is amended by striking ``the amount
determined'' and all that follows and inserting ``$15,000.''.
(b) Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations.--Subparagraph (A) of section 457(e)(15) of
such Code is amended by striking ``the amount determined'' and all that
follows and inserting ``$15,000.''.
(c) Simple Retirement Accounts.--Clause (i) of section 408(p)(2)(E)
of such Code is amended by striking ``the amount determined'' and all
that follows and inserting ``$10,000.''.
(d) Catch-Up Contributions.--Subparagraph (B) of section 414(v)(2) of
such Code is amended--
(1) in clause (i) by striking ``determined'' and all that
follows and inserting ``$5,000.'', and
(2) in clause (ii) by striking ``determined'' and all that
follows and inserting ``$2,500.''.
(e) Effective Date.--The amendments made by this section shall apply
to years beginning after December 31, 2002.
SEC. 4. SIMPLIFICATION AND UPDATING OF THE MINIMUM DISTRIBUTION RULES.
(a) Required Distributions.--
(1) Increase in age for required beginning date.--
Subparagraphs (C)(i)(I) and (C)(ii)(I) of section 401(a)(9) of
the Internal Revenue Code of 1986 are each amended by striking
``age 70\1/2\'' and inserting ``the applicable age''.
(2) Applicable age.--Subparagraph (C) of section 401(a)(9) of
such Code is amended by inserting at the end the following new
clause:
``(v) Applicable age.--The applicable age
shall be determined in accordance with the
following table:
``Calendar year:
Applicable age is:
2003 and 2004............................ 73
2005 and 2006............................ 74
2007 and thereafter...................... 75.''
(3) Spouse beneficiaries.--Subclause (I) of section
401(a)(9)(B)(iv) is amended by striking ``age 70\1/2\'' and
inserting ``the applicable age''.
(4) Actuarial adjustment of benefit under defined benefit
plan.--Clause (iii) of section 401(a)(9)(C) of such Code is
amended to read as follows:
``(iii) Actuarial adjustment.--
``(I) In general.--In the case of a
defined benefit plan, an employee's
accrued benefit shall be actuarially
increased to take into account the
period after the applicable date during
which the employee was not eligible to
receive any benefits under the plan.
``(II) Applicable date.--For purposes
of clause (I), the term `applicable
date' means the April 1st following the
calendar year in which the employee
attains age 70\1/2\.''.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to years beginning after December 31, 2002.
(2) Transition.--A plan shall not be treated as failing to
meet the requirements of section 401(a)(9) of the Internal
Revenue Code of 1986 merely because, in years beginning after
December 31, 2002, no distribution is made to an employee
before the employee's required beginning date, as determined in
accordance with the amendments made by this section.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 5558, as amended (the ``Retirement Savings
and Security Act of 2002'') modifies the tax laws to provide
increased opportunity for saving for retirement.
The bill accelerates the increases in the regular and
catch-up contribution limits to individual retirement
arrangements (``IRAs''), qualified cash or deferred
arrangements and similar plans. This will allow individuals
greater opportunity for tax-favored retirement saving.
The bill also increases incrementally the age at which
distributions from tax-favored retirement plans generally must
begin from 70\1/2\ to 75. This will provide individuals with
more flexibility and control over their retirement savings.
B. Background and Need for Legislation
The provisions approved by the Committee reflect the need
to provide Americans with opportunities to increase retirement
saving and improve retirement income security.
C. Legislative History
COMMITTEE ACTION
The Committee on Ways and Means marked up the provisions of
the bill on October 7 and 8, 2002, and approved the provisions,
as amended, on October 8, 2002, by a roll call vote of 24 yeas
to 10 nays (with a quorum being present).
committee hearings
The Committee has held a number of hearings relating to
retirement income security.
The full Committee held a hearing on Retirement Security
and Defined Contribution plans on February 19, 2002. The
Oversight Subcommittee held a hearing on Retirement Security
and Defined Benefit Plans on June 20, 2002, and a hearing on
Employer and Employee Views on Retirement Security on March 5,
2002.
II. EXPLANATION OF THE BILL
A. Acceleration of Increases in IRA Contribution Limit
PRESENT LAW
Under present law, the maximum annual limit on
contributions to individual retirement arrangements (``IRAs'')
is $3,000 for 2002-2004, $4,000 for 2005-2007, and $5,000 for
2008 \1\ and thereafter. The $5,000 limit is indexed for
inflation after 2008.
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\1\ For years after 2010, the limit is $2,000, pursuant to the
general sunset provision of the Economic Growth and Tax Relief
Reconciliation Act of 2001.
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For individuals who have attained age 50, the maximum
annual limit on IRA contributions is increased by $500 in 2002-
2005 and $1,000 in 2006 and thereafter.\2\
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\2\ For years after 2010, the catch-up provision expires, pursuant
to the general sunset provision of the Economic Growth and Tax Relief
Reconciliation Act of 2001.
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REASONS FOR CHANGE
The Economic Growth and Tax Relief Reconciliation Act of
2001 increased the contribution limits for IRAs and added the
special catch-up contributions for individuals age 50 and
older. These limits were increased in order to allow workers to
accumulate greater retirement savings and, in the case of
catch-up contributions, to allow individuals who may have
missed retirement savings opportunities earlier in their
careers to be able to accumulate sufficient retirement savings.
These provisions were enacted on a phased-in basis due to
budgetary constraints. The Committee remains concerned about
the adequacy of retirement savings, and believes that
accelerating the previously enacted limits will increase
retirement security.
EXPLANATION OF PROVISION
The bill accelerates the increase in the maximum annual
limit on contributions so that the limit is $5,000 for 2003 and
thereafter. The bill also accelerates the increase in the
catch-up contribution limit so that it is $1,000 in 2003 and
thereafter. The $5,000 limit is indexed for inflation after
2008, as under present law.\3\
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\3\ These provisions are permanent.
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EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2002.
B. Acceleration of Scheduled Increases in Pension Plan Contribution
Limits
PRESENT LAW
The annual dollar limit on elective deferrals under
qualified cash or deferred arrangements (sec. 401(k)), tax-
sheltered annuities (sec. 403(b)), and salary reduction
simplified employee pensions (``SEPs'') is $11,000 in 2002.
This limit is scheduled to increase so that it is $15,000 in
2006, with indexing thereafter.
The maximum annual elective deferrals that may be made to a
SIMPLE plan is $7,000 in 2002. This limit is scheduled to
increase so that it is $10,000 in 2005, with indexing
thereafter.
The dollar limit on deferrals under an eligible deferred
compensation plan of a tax-exempt or State or local government
employer (sec. 457) is $11,000 in 2002. This limit is scheduled
to increase until it is $15,000 in 2006, with indexing
thereafter.
Present law provides that individuals who have attained age
50 may make additional catch-up contributions to qualified cash
or deferred arrangements, tax-sheltered annuities, salary
reduction SEPs, and section 457 plans of up to $1,000 in 2002.
This amount is scheduled to increase to $5,000 in 2006, with
indexing thereafter. Individuals who have attained age 50 may
make additional catch-up contributions to a SIMPLE plan of up
to $500 in 2002. This amount is scheduled to increase to $2,500
in 2006, with indexing thereafter.\4\
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\4\ For years after 2010, the catch-up contribution provision
expires and the elective deferral limits revert to the limits in effect
prior to the Economic Growth and Tax Relief Reconciliation Act of 2001
pursuant to the general sunset provision of that Act.
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REASONS FOR CHANGE
The Economic Growth and Tax Relief Reconciliation Act of
2001 increased the contribution limits for cash or deferred
arrangements and similar plans and added the special catch-up
contributions for individuals age 50 and over. These limits
were increased in order to provide greater savings alternatives
and, in the case of catch-up contributions, to allow
individuals who may have missed retirement savings
opportunities earlier in their careers to be able to accumulate
sufficient retirement savings. These provisions were enacted on
a phased-in basis due to budgetary constraints. The Committee
remains concerned about the adequacy of retirement savings, and
believes that accelerating the previously enacted limits will
increase retirement security.
EXPLANATION OF PROVISION
The bill accelerates the increase in the limit on elective
deferrals generally to $15,000, increases the limit on elective
deferrals under SIMPLE plans to $10,000, and increases the
dollar limit on deferrals under a section 457 plan to $15,000
for 2003 and thereafter. These dollar amounts are indexed for
inflation after 2006, as under present law.
For 2003 and thereafter, the bill accelerates the increase
in the maximum catch-up contribution for qualified cash or
deferred arrangements, tax-sheltered annuities, salary
reduction SEPs, and section 457 plans to $5,000 and increases
the maximum catch-up contribution for SIMPLE plans to
$2,500.\5\ These dollar amounts are indexed for inflation after
2006, as under present law.
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\5\ The changes made by the provision are permanent.
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EFFECTIVE DATE
The provision is effective for years beginning after
December 31, 2002.
C. Updating of the Minimum Distribution Rules
PRESENT LAW
In general
Minimum distribution rules apply to all types of tax-
favored retirement arrangements, including qualified retirement
plans and annuities, individual retirement arrangements
(``IRAs''), tax-sheltered annuity plans (``section 403(b)
plans''), and eligible deferred compensation plans of tax-
exempt and State and local government employers (``section 457
plans''). In general, under these rules, distribution of
minimum benefits must begin no later than the required
beginning date. Minimum distribution rules also apply to
benefits payable with respect to a plan participant who has
died. Failure to comply with the minimum distribution rules
results in an excise tax imposed on the individual plan
participant equal to 50 percent of the required minimum
distribution not distributed for the year. The excise tax may
be waived if the individual establishes to the satisfaction of
the Secretary of the Treasury that the shortfall in the amount
distributed was due to reasonable error and reasonable steps
are being taken to remedy the shortfall. Under certain
circumstances following the death of a participant, the excise
tax is automatically waived under Treasury regulations.
Distributions prior to the death of the individual
In the case of distributions prior to the death of the plan
participant, the minimum distribution rules are satisfied if
either (1) the participant's entire interest in the plan is
distributed by the required beginning date, or (2) the
participant's interest in the plan is to be distributed (in
accordance with regulations), beginning not later than the
required beginning date, over a permissible period. The
permissible periods are (1) the life of the participant, (2)
the lives of the participant and a designated beneficiary, (3)
the life expectancy of the participant, or (4) the joint life
and last survivor expectancy of the participant and a
designated beneficiary. In calculating minimum required
distributions from account-type arrangements (e.g., a defined
contribution plan or an individual retirement account), life
expectancies of the participant and the participant's spouse
generally may be recomputed annually.
In the case of qualified retirement plans and annuities,
section 403(b) plans, and section 457 plans, the required
beginning date generally is April 1 of the calendar year
following the later of (1) the calendar year in which the
participant attains age 70\1/2\ or (2) the calendar year in
which the participant retires. However, in the case of a five-
percent owner of the employer, distributions generally are
required to begin no later than April 1 of the calendar year
following the year in which the five-percent owner attains age
70\1/2\. If commencement of distributions from a defined
benefit plan is delayed beyond age 70\1/2\ (i.e., in the case
of a participant who has not retired), then the accrued benefit
of the participant must be actuarially increased to take into
account the period after age 70\1/2\ in which the participant
was not receiving benefits under the plan.\6\ In the case of
distributions from an IRA other than a Roth IRA, the required
beginning date is the April 1 of the calendar year following
the calendar year in which the IRA owner attains age 70\1/2\.
The pre-death minimum distribution rules do not apply to Roth
IRAs.
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\6\ State and local government plans and church plans are not
required to actuarially increase benefits that begin after age 70\1/2\.
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In general, under Treasury regulations, in order to satisfy
the minimum distribution rules, annuity payments under a
defined benefit plan must be paid in periodic payments made at
intervals not longer than one year over a permissible period,
and must be nonincreasing, or increase only as a result of the
following: (1) cost-of-living adjustments; (2) cash refunds of
employee contributions; (3) benefit increases under the plan;
or (4) an adjustment due to death of the employee's
beneficiary. In the case of a defined contribution plan, the
minimum required distribution is determined by dividing the
employee's benefit by an amount from the uniform table provided
in the regulations.
Distributions after the death of the plan participant
The minimum distribution rules also apply to distributions
to beneficiaries of deceased participants. In general, if a
participant dies after minimum distributions have begun, the
remaining interest must be distributed at least as rapidly as
under the minimum distribution method being used as of the date
of death. If the participant dies before minimum distributions
have begun, then the entire remaining interest must generally
be distributed within five years of the participant's death.
The five-year rule does not apply if distributions begin within
one year of the participant's death and are payable over the
life of a designated beneficiary or over the life expectancy of
a designated beneficiary.
A surviving spouse beneficiary is not required to begin
distributions until the date the deceased participant would
have attained age 70\1/2\. In addition, a surviving spouse
generally has the option of rolling over his or her interest in
the plan or IRA to a plan in which the spouse is a participant
or to an IRA established for his or her benefit. In that case,
the minimum distribution rules are applied to the plan or IRA
on the basis of the surviving spouse's age.
REASONS FOR CHANGE
The minimum distribution rules reflect the view that tax-
favored savings should be used primarily for retirement income.
However, the minimum distribution rules impose considerable
complexity on pension plan participants and IRA owners. In
addition, the present-law required beginning date may cause
some individuals to take distributions that they do not
currently need for retirement income, thereby possibly
depleting funds that may be needed in the future.
EXPLANATION OF PROVISION
The bill increases the age at which distributions to a
participant must begin to 73 in 2003 and 2004, 74 in 2005 and
2006, and 75 in 2007 and thereafter. Thus, a participant
generally is not required to begin receiving distributions
until April 1 of the calendar year following the later of (1)
the calendar year in which the participant attains the
applicable age or (2) the calendar year in which the
participant retires. In the case of a five-percent owner of the
employer, distributions are required to begin no later than
April 1 of the calendar year following the year in which the
five-percent owner attains the applicable age. The change in
age also applies for purposes of distributions to surviving
spouses.
The bill revises the rule relating to actuarial adjustments
to the accrued benefit under a defined benefit plan when
commencement of benefits is delayed beyond age 70\1/2\. Under
the provision, a participant's accrued benefit under a defined
benefit plan must be actuarially increased to take into account
the period during which the participant is not eligible to
receive benefits under the plan. For this purpose, the relevant
period begins April 1 following the calendar year in which the
participant attains age 70\1/2\.
EFFECTIVE DATE
The provision is effective for years beginning after
December 31, 2002. Under a transition rule, a plan or IRA is
not treated as failing to meet the minimum distribution
requirements merely because, in years after 2002, it does not
make a distribution before a participant's required beginning
date as determined under the proposal. As a result, a
participant who attains age 70 \1/2\ before 2003 need not
receive distributions in years after 2002 until his or her
required beginning date under the provision. For example, a
participant who attains age 70\1/2\ in 2002 and who is required
under present law to receive a distribution by April 1, 2003,
may delay the distribution until his or her required beginning
date as determined under the provision. In addition, a
participant who began receiving required distributions before
2003 and whose required beginning date under the provision is
after 2004, is not required to receive additional distributions
until that required beginning date.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of the bill, H.R. 5558.
MOTION TO REPORT THE BILL
The bill, H.R. 5558, as amended, was ordered favorably
reported by a roll call vote of 24 yeas to 10 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... X ........ ......... Mr. Rangel........ ........ X .......
Mr. Crane...................... X ........ ......... Mr. Stark......... ........ X .......
Mr. Shaw....................... X ........ ......... Mr. Matsui........ ........ X .......
Mrs. Johnson................... X ........ ......... Mr. Coyne......... ........ X .......
Mr. Houghton................... X ........ ......... Mr. Levin......... X ......... .......
Mr. Herger..................... X ........ ......... Mr. Cardin........ ........ X .......
Mr. McCrery.................... X ........ ......... Mr. McDermott..... X .........
Mr. Camp....................... X ........ ......... Mr. Kleczka....... ........ X .......
Mr. Ramstad.................... X ........ ......... Mr. Lewis (GA).... ........ ......... .......
Mr. Nussle..................... X ........ ......... Mr. Neal.......... ........ ......... .......
Mr. Johnson.................... X ........ ......... Mr. McNulty....... ........ ......... .......
Ms. Dunn....................... X ........ ......... Mr. Jefferson..... ........ ......... .......
Mr. Collins.................... X ........ ......... Mr. Tanner........ ........ X .......
Mr. Portman.................... X ........ ......... Mr. Becerra....... ........ X .......
Mr. English.................... X ........ ......... Mrs. Thurman...... ........ X .......
Mr. Watkins.................... X ........ ......... Mr. Doggett....... ........ ......... .......
Mr. Hayworth................... X ........ ......... Mr. Pomeroy....... ........ X .......
Mr. Weller..................... X ........ ......... .................. ........ ......... .......
Mr. Hulshof.................... X ........ ......... .................. ........ ......... .......
Mr. McInnis.................... X ........ ......... .................. ........ ......... .......
Mr. Lewis (KY)................. X ........ ......... .................. ........ ......... .......
Mr. Foley...................... X ........ ......... .................. ........ ......... .......
Mr. Brady...................... X ........ ......... .................. ........ ......... .......
Mr. Ryan....................... X ........ ......... .................. ........ ......... .......
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IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of the rule XIII of the
Rules of the House of Representatives, the following statement
is made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 5558 as reported.
The bill is estimated to have the following effects on
budget receipts for fiscal years 2003-2007:
ESTIMATED REVENUE EFFECTS OF A CHAIRMAN'S AMENDMENT IN THE NATURE OF A SUBSTITUTE TO H.R. 5558, THE ``RETIREMENT SAVINGS AND SECURITY ACT OF 2002,'' SCHEDULED FOR MARKUP BY THE COMMITTEE ON
WAYS AND MEANS ON OCTOBER 7, 2002
[Fiscal years 2003-2012, in millions of dollars]
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Provision Effective 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003-07 2003-12
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1. Accelerate scheduled increase in IRA tyba 12/31/02 -389 -893 -877 -764 -838 -825 -779 -833 -1,760 -2,989 -3,760 -10,946
contribution limit to $5,000 and IRA
catch-up contribution limit of $1,000..
2. Accelerate scheduled increase in yba 12/31/02 -322 -417 -257 -127 -110 -115 -116 -123 -982 -1,415 -1,234 -3,985
limit on elective deferrals (and
deferrals under section 457 plan) to
$15,000 and increase in limit on
elective deferrals under SIMPLE plans
to $10,000; accelerate scheduled
increase in maximum catch-up
contributions to $5,000 and increase in
maximum catch-up for SIMPLE plans to
$2,500.................................
3. Increase required beginning date for yba 12/31/02 -894 -1,702 -1,561 -2,250 -2,760 -3,114 -3,462 -3,368 -3,592 -3,843 -9,167 -26,547
mandatory distributions from an IRA or
pension plan from age 70\1/2\ to: 73 in
2003 and 2004, 74 in 2005 and 2006, and
75 in 2007 and thereafter..............
4. Technical change to conform the age yba 12/31/02 No revenue effect
at which required distributions must
begin to a surviving spouse to the age
at which required distributions must
begin to the employee..................
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Net total......................... ................ -1,605 -3,012 -2,695 -3,141 -3,708 -4,054 -4,357 -4,324 -6,334 -8,247 -14,161 -41,478
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Legend for ``Effective'' column: tyba=taxable years beginning after; yba=years beginning after.
Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority (as detailed
in the statement by the Congressional Budget Office (``CBO'');
see Part IV.C., below). The Committee further states that the
revenue reducing income tax provisions involve increased tax
expenditures. (See amounts in table in Part IV.A., above.)
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 9, 2002.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 5558, the
Retirement Savings and Security Act of 2002.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Annie
Bartsch.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 5558--Retirement Savings and Security Act 2002
Summary: H.R. 5558 would make several changes to retirement
plan provisions of the Internal Revenue Code of 1986. First,
H.R. 5558 would accelerate the increase in the maximum annual
limit on contributions to individual retirement arrangements
(IRAs) so that it is $5,000 starting in 2003, indexed for
inflation after 2008. Under current law, the maximum limit is
not scheduled to reach $5,000 until 2008. H.R. 5558 would also
accelerate the increases in the maximum annual dollar limit on
elective deferrals generally (including those under sections
401(k) and 403(b), and salary reduction simplified employee
pensions (SEPs)) to $15,000 in 2003, on elective deferrals
under SIMPLE plans to $10,000 in 2003, and on deferrals under
section 457 to $15,000 in 2003. These dollar amounts would be
indexed for inflation after 2006.
The bill also would increase the maximum catch-up
contribution for qualified cash or deferred arrangements, tax-
sheltered annuities, salary reduction SEPs and section 457
plans to $5,000 and increase the maximum catch-up contribution
for SIMPLE plans to $2,500. These dollar amounts would also be
indexed for inflation after 2006.
Finally, for all types of tax-favored retirement
arrangements, H.R. 5558 would increase the age of the
participant at which distributions must begin to 73 in 2003 and
2004, 74 in 2005 and 2006, and 75 in 2007 and thereafter. Under
current law, distributions must begin generally no later than
when the participant turns 70-1/2
The Joint Committee on Taxation (JCT) estimates that
enacting H.R. 5558 would reduce revenues by $1.6 billion in
2003, by $14.2 billion over the 2003-2007 period, and by $41.5
billion over the 2003-2012 period. JCT had determined that the
bill contains no intergovernmental or private-sector mandates
as defined in the Unfunded Mandates Reform Act (UMRA) and would
not affect the budgets of state, local, or tribal governments.
Estimated Cost to the Federal Government: The estimated
budgetary impact of H.R. 5558 is shown in the following table.
All revenue estimates of H.R. 5558 were provided by JCT.
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By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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CHANGES IN REVENUES
Acceleration of increases in IRA -389 -893 -877 -764 -838 -825 -779 -833 -1,760 -2,989
contribution limit.......................
Acceleration of scheduled increases in -322 -417 -257 -127 -110 -115 -116 -123 -982 -1,415
pension plan contribution limits.........
Updating of minimum distribution rules.... -894 -1,702 -1,561 -2,250 -2,760 -3,114 -3,462 -3,368 -3,592 -3,843
Total estimated changes in revenues. -1,605 -3,012 -2,695 -3,141 -3,708 -4,054 -4,357 -4,324 -6,334 -8,247
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Source: Joint Committee on Taxation
Intergovernmental and private-sector impact: JCT has
determined that the bill contains no intergovernmental or
private-sector mandates as defined in UMRA and would not affect
the budgets of state, local, or tribal governments.
Estimate prepared by: Annie Bartsch.
Estimate approved by: Roberton Williams, Deputy Assistant
Director for Tax Analysis.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review concerning the need for retirement security
and the effect of tax-favored savings on attaining such
security that the Committee concluded that it is appropriate
and timely to enact the revenue provisions included in the bill
as reported.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of the rule XIII of the
Rules of the House of Representatives (relating to
Constitutional Authority), the Committee states that the
Committee's action in reporting this bill is derived from
Article I of the Constitution, Section 8 (``The Congress shall
have Power to lay and collect Taxes, Duties, Imposts and
Excises * * *''), and from the 16th Amendment to the
Constitution.
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, and tribal
governments.
E. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the provisions of the bill, and states that
the provisions of the bill do not involve any Federal income
tax rate increases within the meaning of the rule.
F. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service and the Department of Treasury) to provide a
tax complexity analysis. The complexity analysis is required
for all legislation reported by the House Committee on Ways and
Means, the Senate Committee on Finance, or any committee of
conference if the legislation includes a provision that
directly or indirectly amends the Internal Revenue Code and has
widespread applicability to individuals or small businesses.
The staff of the Joint Committee on Taxation has determined
that a complexity analysis is not required under section
4022(b) of the IRS Reform Act because the bill contains no
provisions that amend the Internal Revenue Code and that have
``widespread applicability'' to individuals or small
businesses.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 219. RETIREMENT SAVINGS.
(a) * * *
(b) Maximum Amount of Deduction.--
(1) * * *
* * * * * * *
(5) Deduction amount.--For purposes of paragraph
(1)(A)--
[(A) In general.--The deductible amount shall
be determined in accordance with the following
table:
[For taxable years The deductible
beginning in: amount is:
2002 through 2004................................... $3,000
2005 through 2007................................... $4,000
2008 and thereafter................................. $5,000.
[(B) Catch-up contributions for individuals
50 or older.--
[(i) In general.--In the case of an
individual who has attained the age of
50 before the close of the taxable
year, the deductible amount for such
taxable year shall be increased by the
applicable amount.
[(ii) Applicable amount.--For
purposes of clause (i), the applicable
amount shall be the amount determined
in accordance with the following table:
[For taxable years The applicable
beginning in: amount is:
2002 through 2005................................... $500
2006 and thereafter................................. $1,000.]
(A) In general.--The deductible amount shall
be $5,000.
(B) Catch-up contributions for individuals 50
or older.--In the case of an individual who has
attained the age of 50 before the close of the
taxable year, the dollar amount in effect under
paragraph (1)(A) for such taxable year
(determined without regard to this paragraph)
shall be increased by $1,000.
* * * * * * *
Subchapter D--Deferred Compensation, Etc.
* * * * * * *
PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
* * * * * * *
Subpart A--General Rule
* * * * * * *
SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.
(a) Requirements for Qualification.--A trust created or
organized in the United States and forming part of a stock
bonus, pension, or profit-sharing plan of an employer for the
exclusive benefit of his employees or their beneficiaries shall
constitute a qualified trust under this section--
(1) * * *
* * * * * * *
(9) Required distributions.--
(A) * * *
(B) Required distribution where employee dies
before entire interest is distributed.--
(i) * * *
* * * * * * *
(iv) Special rule for surviving
spouse of employee.--If the designated
beneficiary referred to in clause
(iii)(I) is the surviving spouse of the
employee--
(I) the date on which the
distributions are required to
begin under clause (iii)(III)
shall not be earlier than the
date on which the employee
would have attained [age 70\1/
2\] the applicable age, and
* * * * * * *
(C) Required beginning date.--For purposes of
this paragraph--
(i) In general.--The term ``required
beginning date'' means April 1 of the
calendar year following the later of--
(I) the calendar year in
which the employee attains [age
70\1/2\] the applicable age, or
* * * * * * *
(ii) Exception.--Subclause (II) of
clause (i) shall not apply--
(I) except as provided in
section 409(d), in the case of
an employee who is a 5-percent
owner (as defined in section
416 with respect to the plan
year ending in the calendar
year in which the employee
attains [age 70\1/2\] the
applicable age, or
* * * * * * *
[(iii) Actuarial adjustment.--In the
case of an employee to whom clause
(i)(II) applies who retires in a
calendar year after the calendar year
in which the employee attains age 70\1/
2\, the employee's accrued benefit
shall be actuarially increased to take
into account the period after age 70\1/
2\ in which the employee was not
receiving any benefits under the plan.]
(iii) Actuarial adjustment.--
(I) In general.--In the case
of a defined benefit plan, an
employee's accrued benefit
shall be actuarially increased
to take into account the period
after the applicable date
during which the employee was
not eligible to receive any
benefits under the plan.
(II) Applicable date.--For
purposes of clause (I), the
term ``applicable date'' means
the April 1st following the
calendar year in which the
employee attains age 70\1/2\.
* * * * * * *
(v) Applicable age.--The applicable
age shall be determined in accordance
with the following table:
Calendar year: Applicable age is:
2003 and 2004....................................... 73
2005 and 2006....................................... 74
75. 2007 and thereafter.................................
* * * * * * *
SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST.
(a) * * *
* * * * * * *
(g) Limitation on Exclusion for Elective Deferrals.--
(1) In general--
(A) * * *
(B) Applicable dollar amount.--For purposes
of subparagraph (A), the applicable dollar
amount shall be [the amount determined in
accordance with the following table:
[For taxable years The applicable
beginning in calendar year: dollar amount:
2002........................................................ $11,000
2003........................................................ $12,000
2004........................................................ $13,000
2005........................................................ $14,000
2006 or thereafter.......................................... $15,000.]
$15,000.
* * * * * * *
SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.
(a) * * *
* * * * * * *
(p) Simple Retirement Accounts.--
(1) * * *
(2) Qualified salary reduction arrangement.--
(A) * * *
* * * * * * *
(E) Applicable dollar amount; cost-of-living
adjustment.--
(i) In general.--For purposes of
subparagraph (A)(ii), the applicable
dollar amount shall be [the amount
determined in accordance with the
following table:
[For years The applicable
beginning in dollar amount: calendar year:
2002................................................ $7,000
2003................................................ $8,000
2004................................................ $9,000
2005 or thereafter.................................. $10,000.]
$10,000.
* * * * * * *
Subpart B--Special Rules
* * * * * * *
SEC. 414. DEFINITIONS AND SPECIAL RULES.
(a) * * *
* * * * * * *
(v) Catch-up Contributions for Individuals age 50 or Over--
(1) * * *
(2) Limitation on amount of additional deferrals.--
(A) * * *
(B) Applicable dollar amount.--For purposes
of this paragraph--
(i) In the case of an applicable
employer plan other than a plan
described in section 401(k)(11) or
408(p), the applicable dollar amount
shall be [determined in accordance with
the following table:
[For taxable years The applicable
beginning in: dollar amount is:
2002................................................ $1,000
2003................................................ $2,000
2004................................................ $3,000
2005................................................ $4,000
2006 and thereafter................................. $5,000.]
$5,000.
(ii) In the case of an applicable
employer plan described in section
401(k)(11) or 408(p), the applicable
dollar amount shall be [determined in
accordance with the following table:
[For taxable years The applicable
beginning in: dollar amount is:
2002................................................ $500
2003................................................ $1,000
2004................................................ $1,500
2005................................................ $2,000
2006 and thereafter................................. $2,500.]
$2,500.
* * * * * * *
Subchapter E--Accounting Periods and Methods of Accounting
* * * * * * *
PART II--METHODS OF ACCOUNTING
* * * * * * *
Subpart B--Taxable Year for Which Items of Gross Income Included
* * * * * * *
SEC. 457. DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS
AND TAX-EXEMPT ORGANIZATIONS.
(a) * * *
* * * * * * *
(e) Other definitions and Special Rules.--For purposes of
this section--
(1) * * *
* * * * * * *
(15) Applicable dollar amount.--
(A) In general.--The applicable dollar amount
shall be [the amount determined in accordance
with the following table:
[For taxable years
beginning in
The applicable
calendar year:
dollar amount:
2002........................................................ $11,000
2003........................................................ $12,000
2004........................................................ $13,000
2005........................................................ $14,000
2006 or thereafter.......................................... $15,000.]
$15,000
* * * * * * *
VII. DISSENTING VIEWS
The Democratic Members of this Committee would welcome an
opportunity to engage in the process of producing bipartisan
legislation to address the important issues confronting the
American people today. There are many issues that demand our
time and attention. However, we do not wish to waste precious
time engaging in political posturing. H.R. 5558 has not been
reported by this Committee in an effort to make law. The
political nature of this effort is clear from the objectionable
process under which the legislation has been brought forward.
It is unacceptable protocol to have any serious action of
the Committee announced after 4 p.m. on a Friday for Committee
action the following Monday. As the Committee was well aware,
many Members had already gone back to their district for the
week without any knowledge of important matters to bring them
back before Monday.
Meaningful debate can occur only when Members are
adequately prepared to discuss the issues being considered.
Obviously, meaningful debate and consideration were not desired
in this instance.
We believe that the short time we have remaining in this
congress is far too precious to be wasted in this manner. The
state of the American economy, the number of uninsured
Americans, the rising level of unemployment, the prohibitive
cost of prescription drugs for our seniors, and the lack of
security in our pension system--these are all issues that do
not afford us the luxury of engaging in political charades.
The legislation being reported by the Committee is ill-
timed. The provision to modify the age at which an individual
is required to make minimum distributions from his or her
Individual Retirement Account (IRA), while worthy of some
discussion, does not rise to the level of immediacy that
requires this type of action during the last days of the
congressional session.
We agree that changes in this area should be considered.
However, we believe such changes should be examined as the
Social Security reform debate moves forward. For example, one
of the President's three privatization plans would effectively
raise the retirement age for Social Security. This would, in
turn, have an effect on the private pension system. These
concerns also extend to the other provisions considered by the
Committee that would permit increased contributions to IRAs and
employer-sponsored defined contribution plans. We support the
Committee's effort to move these issues forward through a
deliberative legislative process including hearings, input from
experts on pension issues, and an ongoing debate. We believe
that it is appropriate to determine the impact these changes
would have on our retirement system.
Our country is in a state of economic decline. There has
been negative economic growth for the past year. In the past
nineteen months, projected surpluses of $5.6 trillion have
totally disappeared. We are now back to deficit spending for
the foreseeable future. We know that most of this change in
circumstance is not attributable to the war efforts. As former
Treasury Secretary Robert Rubin pointed out during his
appearance on CNBC's ``After Hours with Maria Bartiromo'' on
July 15, 2002, while addressing the issue of disappearing
surpluses, a large part of the economic damage is due to the
tax cut that was put in place last year, partly because of the
cost, and partly because it undermined the political cohesion
that had developed around fiscal discipline. We should not be
enacting any further long term tax cuts. We cannot afford them.
Our economy needs to be revived. We should be engaging in
serious debate on how we can bring this about. To restore the
economic confidence necessary to accomplish this goal, we need
to get our fiscal house in order. We may have disagreements on
how to do it but we at least owe it to the American people to
have a bipartisan economic debate that puts everything on the
table for discussion.
The stock market has lost $4\1/2\ trillion in value in the
last two years. This was due, in large measure, to the
corporate corruption that has captured the headlines. It is
irresponsible for us to end this Congress without any serious
attempt to address these issues. While we will agree that
Congress cannot legislate morality, we are obligated to take
steps to ensure that corrupt corporate executives can not get
away with millions in retirement benefits while average working
Americans walk away with nothing more than an empty bag, a bag
that once held a secured retirement and a job that enabled them
to take care of their families.
There has been no shortage of reports of corporate
executives who have reaped millions of dollars acting on
insider information to enrich themselves at the expense of
thousands of rank-and-file employees. Executives from companies
such as Enron and Global Crossing escaped their companies'
bankruptcies with millions of dollars that could not be reached
by the creditors of these companies. Yet many employees lost
all their retirement savings in their 401(k) plans which were
invested in the same company stock that made millions of
dollars for the executives. These executives were rewarded for
driving their companies into the ground. Yet, this Committee,
which has jurisdiction over these issues, has made no attempt
to address them.
We welcome the opportunity to begin a serious debate on how
we can resolve these issues. We would prefer to utilize the
time spent on the legislation before us developing bipartisan
legislation that would address these corporate abuse issues.
Rep. Matsui has introduced two bills that would require
corporations to act in a more responsible manner with respect
to executive compensation. We would welcome any opportunity
before this Congress adjourns to have this legislation
considered and brought to a vote.
The issue of prohibitive prescription drug costs also is
very real. Few issues are of greater importance to Medicare
beneficiaries than the issue of adding a prescription drug
benefit to Medicare. The skyrocketing costs of prescription
drugs affect all geographic, racial, and economic groups.
Unfortunately, the Republicans have been unwilling to show the
necessary leadership on this issue to enact a benefit bill this
year. We believe that if we are serious about the state of this
country and the issues that must be addressed it may not be too
late to reach an acceptable resolution of this issue. We should
not adjourn without passing legislation in this area. No
Medicare beneficiary should have to choose between putting food
on the table and paying for needed medications. Rather than use
the Committee for political posturing, we need to occupy
ourselves with the pressing issues affecting the lives of the
American people.
The unemployment situation is another issue we should be
trying to resolve today. As of September 2002, there were 5.7
million Americans unemployed. Many of these individuals are
running out of unemployment benefits. These individuals need
jobs. They have responsibilities for themselves and their
families. But, the job market is stagnant. In addition, being
unemployed all too often means being without health insurance
coverage for yourself or your family members. How can we claim
to be engaging in serious legislation when the Republican
leadership consistently has failed to address these issues, or
provide a forum for serious debate?
With all the challenges our country is facing we should be
working constantly to find solutions. Instead, we are being
asked to engage in political grandstanding. This is not the
time for such antics. We must report to the American people,
and they will be listening for the report. We can not afford to
engage in efforts that continue to ignore our serious domestic
issues. Failure to act will exact a high price from us all,
including our constituents.
C.B. Rangel.
Robert T. Matsui.
Jerry Kleczka.
Sander Levin.
John Lewis.
William J. Coyne.
Ben Cardin.
Pete Stark.
Xavier Becerra.
Jim McDermott.
Earl Pomeroy.
Richard E. Neal.
William M. Jefferson.