1 H.R. 3503. See Institute Memorandum to Pension Committee No. 17-98, dated March 26, 1998.
2 H.R. 3788. See Institute Memorandum to Pension Committee No. 27-98, dated May 7, 1998.
3 S. 2339. See forthcoming Institute Memorandum to Pension Committee.
4 According to the statement in the Congressional Record, which is attached, individuals with
Roth IRAs also would not be permitted to avail themselves of this rollover provision.
[10165]
August 4, 1998
TO: PENSION COMMITTEE No. 49-98
RE: ADDITIONAL PENSION PORTABILITY LEGISLATION FILED
______________________________________________________________________________
Senators Jeffords (R-VT), Bingaman (D-NM) and Graham (D-FL) recently introduced S. 2329,
titled the “Retirement Account Portability Act of 1998.” This legislation seeks to enhance the portability
of retirement benefits. Similar proposals have been included in bills previously filed by Representative
Pomeroy (D-SD)1 and Representatives Portman (R-OH) and Cardin (D-MD)2 and in a larger pension
reform bill recently filed by Senators Graham (D-FL) and Grassley (R-IA).3 Included among the bill's
provisions are the following:
I. Enhanced Individual Account Portability. The bill would permit the rollover of “eligible
rollover distributions” from a 401(k) plan to another section 401(k) plan, 403(b) arrangement,
section 457 plan, or IRA. Likewise such distributions from a 403(b) arrangement or 457 plan
could be rolled over to the same array of retirement vehicles. Under the bill, rules regarding
20% withholding would not apply to section 457 plans. The written notice required to be
provided under Code section 402(f) when an “eligible rollover distribution” is made would be
expanded to apply to section 457 plans and to include a description of restrictions and tax
consequences which will be different if the plan to which amounts are transferred is a different
type of plan from the distributing plan.
II. Rollover of IRAs to Qualified Plans. The bill would permit the rollover of IRAs into a 401(k)
plan, 403(b) arrangement or a section 457 plan to the extent an individual has never made any
nondeductible contribution to his or her IRA.4
III. Rollover of After-tax Contributions. The bill would permit the rollover of after-tax
contributions to be included in a rollover contribution to an IRA or qualified retirement plan.
Unlike requirements set forth in H.R. 3503, trustees would not be required to separately track or
report these amounts.
- 2 -
IV. Modification of 60-Day Rollover Rule. The bill would permit the Department of Treasury to waive
the 60-day rollover requirement in cases of a Presidentially-declared natural disaster, military service
within a combat zone, undue hardship, such as serious personal injury or illness.
V. Modification of the Same Desk Rule. The bill would modify the “same desk” rule that applies
to distributions from 401(k) plans. Under current law, a “separation from service” is a
distributable event. Under the “same desk” rule, however, the law has been interpreted to
prohibit distributions to a terminated employee if the employee continues performing the same
functions for a successor employer. To address this issue, the bill would replace the phrase
“separation from service” with “severance from employment.” This would enable employees to
transfer funds to the new employer plan rather than being required leave their account balance
with their prior employer.
VI. Modification of Retirement Plan Distribution Options. The bill would modify the Code section
411(d)(6) “anti-cutback” rule to permit an employee to waive his or her section 411(d)(6) rights and
transfer benefits from one defined contribution plan to another without requiring the transferee plan
to preserve the forms of benefit options offered by the transferor plan.
VII. Lump Sum Cash-out Rule Modification. The bill would allow plan sponsors to disregard
rollover amounts received by their plans when determining a terminated employee’s eligibility
for the involuntary cash-out rule. Under the cash-out rule, an employer may distribute, without
terminated employee election, the individual’s vested accrued benefit if the benefit does not
exceed $5,000.
A copy of the bill is attached.
Russell G. Galer
Senior Counsel
Attachments