[9681]
VIA FAX
ACTION REQUESTED
February 19, 1998
TO: PENSION COMMITTEE No. 8-98
PENSION OPERATIONS ADVISORY COMMITTEE No. 7-98
RE: CONFERENCE CALL ON LEGISLATIVE PROPOSALS
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Numerous legislators, as well as the Clinton Administration, are developing legislative
proposals to expand, simplify and/or address perceived inadequacies with regard to retirement
savings. We have scheduled a conference call to discuss several significant proposals: (1) a
simplified small employer defined benefit plan, (2) modification of the required minimum
distribution rules and (3) catch-up contributions for 401(k) plans and IRAs. We seek your
assistance to determine whether these proposals are desirable, identify technical and
administrative concerns, and develop design details that would more feasibly implement each
legislative concept.
The conference call is scheduled for Friday, February 27, 1998 at 1:30 p.m. If you would
like to participate in the call please fax the attached reply sheet to Theresa Brice at (202) 326-
5839. If you are unavailable for the conference call, please feel free to call either the
undersigned at (202) 326-5835 or Kathryn Ricard at (202) 218-3563 with any comments.
The following describes the proposals that will be discussed:
1. Simplified Defined Benefit Plan For Small Employers. This proposal appeared last year
in legislation sponsored by Representatives Pomeroy (D-ND), Fawell (R-IL) and
Johnson (R-CT). More recently, President Clinton has proposed a modified version of
the program -- the Secure Money Annuity or Retirement Trust ("SMART") Plan. A
description of the President’s proposal is attached. We would like to (1) identify design
concerns and possible solutions, (2) discuss the extent to which employers might fund
the SMART plan with mutual funds, particularly in light of annuitization requirements,
guaranteed annual return and PBGC premiums, and (3) consider whether this product
would serve as a companion or competitor to the existing SIMPLE program.
2. Required Minimum Distribution Reform. The Small Business Job Protection Act of 1996
modified section 401(a)(9) of the Internal Revenue Code so that qualified plans need not
require active employees who attain age 70½ to begin to receive plan distributions until
actual retirement. The Roth IRA, established by the Taxpayer Relief Act of 1997, does
not impose "RMD" requirements on accountholders, except upon death. These changes
may set the stage for broader modification of the current RMD rule. One notable
suggestion is to raise the required age at which distributions must begin to 75 and,
perhaps, to alter the life expectancy tables on which distributions may be based. Is this
a desirable change? What transition rules would be needed? What issues arise with
regard to individuals already in pay status? To what extent would computer and other
information systems need to be modified? Are there other modifications to the rules
that should be considered? Would this change assist or hinder individuals’ estate
planning efforts?
3. Catch-up Provisions. Last year, legislation was filed that would have permitted
individuals to ‘make-up’ contributions to their 401(k) plan when they were prevented
from participating in a plan in cases of maternity or paternity leave. The proposal also
would have permitted individuals to make up contributions for time spent out of the
workforce while raising children. Many expressed concern that while the concept was
sound, the proposal itself would give rise to significant administrative burdens. In this
legislative season, legislators are considering an alternative version of the "catch-up"
concept: individuals who have attained a certain age would be permitted to make
additional contributions to their plan. For example, an individuals at age 40 might be
able to make an additional $3,000 contribution to a plan; at age 50 an additional $4,000
and at age 60 an additional $5,000. Issues would include (1) administrative feasibility,
(2) the role of nondiscrimination rules, if any, and (3) whether a similar program should
be advocated for IRAs.
Russell G. Galer
Associate Counsel
Attachments
ATTENDANCE RESPONSE FORM
INVESTMENT COMPANY INSTITUTE
CONFERENCE CALL ON LEGISLATIVE PROPOSALS
Friday, February 27, 1998
Please fax this portion by Thursday, February 26, , 1998 to Theresa Brice
Investment Company Institute, 202-326-5841.
Yes, I will participate in the Conference Call regarding Legislative Proposals
on Friday, February 27, 1998 at 1:30 p.m. (EST)
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COMMITTEE MEMBER
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COMPANY NAME
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PHONE NUMBER