July 3, 1991
TO: BOARD OF GOVERNORS NO. 51-91
EXECUTIVE COMMITTEE NO. 15-91
RE: RECENT TAX AND PENSION LEGISLATIVE DEVELOPMENTS
__________________________________________________________
In addition to H.R. 2735, the mutual fund tax bill, three
other bills containing tax and pension provisions significant to
the fund industry were introduced last week.
In the tax area, H.R. 2777, "Tax Simplification Act of
1991", the tax simplification legislation sponsored by the
leadership of the House and Senate tax-writing Committees
addresses two problems of industry concern: the tax treatment of
shares of a passive foreign investment company (PFIC) held by a
fund and the reporting of foreign tax credits. The bill adopts a
mark-to-market system for both mutual funds and closed-end funds
holding PFIC shares and simplifies the foreign tax credit
reporting for mutual fund shareholders. Both provisions were
supported by the Institute.
In the pension area, bills introduced last week contain
provisions that are important for industry members participating
in the retirement plan market. The bills, one sponsored by Ways
and Means Committee Chairman Rostenkowski and the other by Senate
Finance Committee Chairman Bentsen and Finance Committee Member
David Pryor, would revise the rules currently applicable to so-
called SARSEPs (salary reduction simplified employee pensions).
Both bills would permit such plans, which are now limited to
employers with 25 or fewer employees, to be maintained by
employers with 100 or fewer employees. Each bill would also
simplify the applicable non-discrimination rules, although each
does so differently.
Pension portability, the ability to rollover to an IRA pre-
retirement distributions from a qualified pension plan, is also
addressed by both the Rostenkowski and Bentsen/Pryor bills. The
Rostenkowski bill would require all qualified plans to
affirmatively offer participants the election to have their
distributions transferred directly to an IRA, while the
Bentsen/Pryor bill would require such a transfer. The
Rostenkowski bill also authorizes the Treasury to prescribe
certain responsibilities for sponsors of master and prototype
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plans such as mutual fund organizations, which are intended to
increase the accountability of such sponsors for the plans of
adopting employers.
We are generally pleased that these bills have been
introduced and will continue to work for a favorable resolution
of the issues addressed in them. We will keep you informed as
the legislation progresses.
David Silver
President