Retirement Provisions Enacted in (and Excluded from) the Congressional Spending Deal
Jeannine Markoe Raymond
Director of Federal Relations, NASRA
Attached to Fiscal Year 2020 appropriations legislation, signed into law late December 2019, was the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Bipartisan American Miners Act. Among the various enacted changes are a handful that are applicable to governmental plans, including: an increase in the required minimum distribution age from 70½ to 72, allowing parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses, a requirement that defined contribution plan distributions made to survivors who are not "eligible designated beneficiaries" be made within 10 years of an employee's death, and a revenue provision that reduces the minimum age for permissive in-service distributions from qualified retirement plans and governmental 457(b) plans to age 59½.
While retirement security bills had been in the works for years in both chambers of Congress, public sector pension advocates had been primarily concerned with keeping harmful provisions out of moving legislation. A number of problematic tax proposals were forwarded last Congress as part of Tax Reform bills. While none were ultimately enacted, many were given a revenue score and could be used to pay for provisions in future legislation. The most notable proposals affecting state and local government pension plans included removing “special rules,” such as the exclusion from Unrelated Business Income Tax (UBIT) on public plan investments, additional catch-up contributions for 457/403(b) plans, and the exemption from 10% early distribution penalty for 457 plans. There were also attempts to modify the “pick-up” provision under IRC Section 414(h)(2) to allow individual elections that change employee contributions, but language was not supported by all stakeholder groups. Proposals to eliminate the tax deferral on nonqualified deferred compensation plans once vested would have also affected governmental 415(m) plans, and “Rothification” (making employee contributions after-tax) had the potential of affecting all pension and retirement savings vehicles.
The FY 2020 spending bill included a fix for miners’ pensions but did not include legislation that passed the House to address insolvency facing a number of other large private sector multiemployer plans or the Federal Pension Benefit Guaranty Program that insures them. There is continued confusion between these pensions and those in the public sector, particularly because Central States Pension Fund, a Teamsters plan, is one of the largest troubled plans and often mistaken for a state plan. Federal loans and a focus on discount rates for these plans spurred interest in public plans as well. “No Bailout” legislation and resolutions on public pensions have been introduced in both chambers.
While not yet introduced, the Public Employee Pension Transparency Act (PEPTA) has been forwarded in the last five Congresses and would impose onerous, costly and conflicting federal reporting requirements using a “risk-free” discount rate on state and local pensions. Unsuccessful attempts were made last Congress to include PEPTA as part of the hearings and legislation to address multiemployer plans. In the 114th Congress, PEPTA was included in a Senate Puerto Rico Assistance measure, but not retained in final enacted legislation. There are key staff who continue to misinform policymakers that PEPTA doesn’t just impose inappropriate federal red tape but will stem public plan insolvencies and a federal bailout.
Although the FY 2020 appropriations bill contained the most significant retirement security legislation in nearly a decade, what it didn’t include is possibly as significant for public plans. That said, there are a number of applicable provisions in the new law. Several firms, listed below, provide helpful implementation summaries regarding changes to plan terms, recordkeeping and communications public funds may wish to consider as a result of the new law.