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The Spirit of HR 1776: Save!

Congressmen Rob Portman (R-OH) and Ben Cardin (D-MD) have introduced a third installment of pension reform: The Pension Preservation and Savings Expansion Act (H.R.1776). The bill takes up what the 2001 tax relief left undone, mainly increasing the tax-deferred savings limits for pensions and making these new limits permanent.

Despite concerns about the growing federal deficit and a 50 to 51 Senate-passed economic package, H.R.1776 is likely to pass the House sometime this summer. Listed below are some of the highlights of the bipartisan bill that currently has 18 co-sponsors.

• Encourage more savings by increasing the tax deferral limits for IRAs and defined contribution plans. For individuals under 50, the IRA limit would move from the current $3,000 limit to $5,000, and the 401(k) limit would move from its current limit of $13,000 to $15,000. For individuals over 50, the IRA limit would move from $3,500 to $6,000, and the 401(k) limit would move from $16,000 to $20,000.
  
  
• Make savings reforms contained in the bill and in the 2001 tax relief act permanent.
  
  
• Give workers greater protections over their retirement plan. These new rights include the ability to diversify company stock that is contributed to their 401(k) account; create a new tax incentive to help employees pay for retirement advice and counseling; and require employers to provide generally accepted investment principles upon enrollment into a 401(k) plan and in quarterly statements.
  
  
• Raise the mandatory pension distribution age of 70 and a half to age 75, which reflects the growing life expectancy of Americans.
  
  
• Replace the interest rate for defined benefit plans. The legislation will change the 30-year Treasury bond rate to a benchmark based on long-term conservative corporate bond rates for funding, premium and lump sum calculations. The bill will provide a transition for older workers so that their expectations regarding lump sum amounts are not undercut.
  
  
• Assist retirees with health care expenses by permitting retiree health care premiums to be paid with pre-tax income from their retirement savings accounts. Additionally, employers who sponsor a 401(k) would be given a modest new savings vehicle to help employees fund retiree medical expenses on a pre-tax basis.
  
  
• Enhance portability by permitting more rollovers. The bill would permit rollovers between spouses' IRAs, grant non-spouse beneficiaries the ability to rollover assets into an IRA, and allow unused monies in flexible spending accounts, up to $500 to be applied as a contribution to a defined contribution plan or IRA. Currently, unused money in a flexible spending account is forfeited.
  
  

Read Next: House Debates Advice Legislation, Bill Passes & Waits for Senate Action