1
*/ For example, an individual who contributes $8,475 to a
401(k) could not make an IRA contribution, but if he contributes
$7,475, he could make a $1,000 IRA contribution. This structure
is also known as a "last-dollar" offset.
- 1 -
October 24, 1991
TO: PENSION COMMITTEE NO. 32-91
RE: SPECIAL MEETING TO DISCUSS IRA LEGISLATION
__________________________________________________________
A special meeting of the Pension Committee has been
scheduled for Tuesday, October 29 at 10:00 a.m. to discuss the
IRA legislation currently under consideration by Senator Bentsen.
The meeting will be held at the Madison Hotel in Washington, D.C.
The purpose of this meeting is to determine the Pension
Committee's recommendation to the Institute's Executive Committee
as to whether the Institute should support or oppose this
proposal. Because of the importance of this meeting, we ask that
each of you try to attend, or send a representative, and bring a
member of your organization responsible for IRA marketing.
Please be prepared to cast your organization's vote at the
meeting on Tuesday.
Senator Bentsen's revised proposal is designed to reduce
the revenue loss from $25 billion to $12.5 billion by adding the
following provisions to the IRA legislation introduced earlier
this year:
coordinating 401(k) and 403(b) contributions with IRA
contributions to establish a maximum combined limit at the
401(k) limit, currently $8,475, and the 403(b) limit,
respectively;*/1
allowing conversion of existing IRAs to so-called "back-
end" IRAs;
requiring that new IRA contributions by taxpayers over age
- 2 -
59-1/2 be held for five years or be subject to the 10
percent early withdrawal penalty; and
delaying the effective date until January 1, 1992.
- 1 -
IRA-401(k) Coordination
Following internal meetings as well as a meeting of
representative fund groups, the Institute has identified the
following issues concerning the first feature, the proposed
coordination with 401(k) contributions, as compared to the
provisions of current law.
(1) The effect of the proposal on IRA eligibility. We are
collecting data, and would ask your organization to also collect
data, concerning the impact of the new proposal in terms of
increased IRA eligibility. Specifically, we would like to review
data concerning the number and income levels of participants in
401(k) and similar plans who contribute the section 402(g) or
similar maximum limit (or contribute an amount within $2000 of
the limit), especially those with annual incomes in excess of
$50,000.
(2) The impact of the proposal on IRA marketing. We need
your organization's assessment of the marketing impact of these
changes as compared to current law. That is, would this scheme
be easier or more difficult to explain than the current scheme?
As a related matter, would administrative difficulties in
determining IRA eligibility limit the actual contributions to
IRAs even among those who would remain eligible?
(3) The possible negative effect of the proposal on 401(k)
plans. Please consider whether the proposal would have a
negative impact upon participation in 401(k) plans and whether
this should be a consideration in developing the Institute's
position on this legislation.
(4) The possibility that the offset will extend to other
plans. Although the current proposal would offset IRA
contributions only with respect to salary reduction
contributions, during the legislative process, other plan
contributions could also be added to the list of offsetting
contributions.
(5) The possibility that the offset might be changed to a
"first-dollar" offset. During the legislative process, the
currently proposed "last-dollar" offset could be changed to a
"first-dollar" offset, under which a $2,000 401(k) or 403(b)
contribution would eliminate the individual's ability to make any
IRA contribution.
We would also like to discuss the other aspects of the
proposal and formulate a list of priorities for changes among
these features.
Please contact Theresa Brice at the Institute at (202) 955-
- 2 -
3525 with the names of those from your organization who will
attend the meeting on Tuesday. Remember that we will need your
organization's vote on Tuesday.
Kathy D. Ireland
Associate Counsel - Pension