The text of the budget deal is now available, and, despite the rumors over the last several months, there are not many changes which affect pension and retirement plans other than an increase in PBGC fees. The text of the bill is here, and the changes to PBGC fees are in section 703, which starts on page 65 of 77 pages.
Nov. 13, 1981 – The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) was introduced in the U.S. House of Representatives by Rep. Pete Stark (CA) as H.R. 4961.
TEFRA was signed into law by President Ronald Reagan on Sept. 3, 1982, becoming Public Law 97-248.
TEFRA modified some of the changes made by the Economic Recovery Tax Act of 1981 (ERTA), which had dramatically lowered income tax rate from a maximum rate of 96% to a maximum rate of 50%. Concerned that such a dramatic reduction in the tax rates would cause large budget deficits, TEFRA was passed to alleviate some of ERTA’s impact by increasing the tax received by the federal government through removing tax deductions and not increasing tax rates.
TEFRA made a number of changes to qualified plans, including adding limits on contributions and benefits, loans to participants, retirement savings for church employees, contributions for disabled employees, partial rollovers for IRA distributions, and new recordkeeping requirements.
TEFRA was incorporated into plan documents as the TEFRA/DEFRA/REA generation of plan documents, which came before the TRA’86 generation of plan document. If you search the current generation of plan documents, the EGTRRA plan documents, you will find a paragraph specifically referencing TEFRA.
Aug. 23, 1984 – The Retirement Equity Act of 1984 (REA), Pub. L. 98-397, is signed into law by President Ronald Reagan. REA made a number of significant changes which have become a part of our daily plan language, including QDROs, QJSA, and Code secton 417.
President Reagan’s statement when signing REA included these comments:
“Existing pension rules, when originally enacted, did not fully anticipate the dual roles many women have come to play as both members of the paid labor force and as wives and mothers during periods of full-time work in the home. Provisions in many pension plans now operate in ways that fail to recognize paid work performed by women at certain periods in their lives and penalize them for time spent in childrearing. To address this inequity, the Retirement Equity Act lowers the age limits on participation and vesting, permitting more pension credits to be earned during the early working years when women are most likely to be employed. The legislation also eases break-in-service rules so that parents who bear children and stay home to care for them in the early years will no longer lose the pension credits they previously earned while working.
The Retirement Equity Act also clarifies that each person in a marriage has a right to benefit from the other’s pension. No longer will one member of a married couple be able to sign away survivor benefits for the other. A spouse’s written consent now will be required on any decision not to provide survivors’ protection. The legislation also helps assure that when a vested employee dies before retirement, the employee’s surviving spouse will benefit from the pension credits the employee has earned, and it restricts considerably the latitude now allowed pension plans to impose additional conditions on survivors’ benefits. Survivors’ benefits will be paid automatically in more instances than now. In addition, the bill makes it clear that State courts can allocate pension rights in divorce cases and other domestic relations settlements.”
The Internal Revenue Manual also contains a summary of REA and its impact on qualified plans.
Aug. 22, 1974 – The Employee Retirement Income Security Act (ERISA), Pub. L. 93-406, passes the Senate by a vote of 85 to zero. It is signed into law by President Gerald Ford on Sept. 2, 1974.
ERISA was introduced in the U.S. House of Representatives on Jan. 3, 1973 by Rep. John Herman Dent (PA-21). It passed the House on Feb. 28, 1974 by a vote of 376-4. It then passed the Senate on March 4, 1974. Due to differences between the House and Senate versions, ERISA went to a joint conference committee, which worked out the differences and sent it back for a vote on Aug. 12, 1974. The House voted 407-2 on Aug. 20, 1974, and the Senate voted on Aug. 22, 1974.
The two Congressmen that voted “Nay” on Aug. 20, 1974 were Earl Landgrebe (IN-2) and James Collins (TX-3). Congressman Landgrebe lost his bid for re-election in November of 1974.
Aug. 21, 1996 – The Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. 104-191, was signed into law by President Bill Clinton.
HIPAA was 168 pages long, and added Part 7 on Group Health Plan Portability, Access, and Renewability Requirements to ERISA.
HIPAA was introduced in the House of Representatives on March 18, 1996 by Rep. Bill Archer (TX-7).
Aug. 20, 1996 – President Bill Clinton signs the Small Business Job Protection Act of 1996, Pub. L. 104-188. It made a number of significant changes to qualified plans, such as creating the SIMPLE 401(k) plan, repealing the family aggregation rules that were contained in Code section 414(q)(6), shorting the 10-year vesting period to 5 years, and adding alternative ways of satisfying Code section 401(k) nondiscrimination tests which created the current generation safe harbor 401(k) plans.
For those of you who like plan document trivia, the Small Business Job Protection Act of 1996 is the “S” in GUST.
President Clinton made a short speech when he signed SBJPA.
Aug. 10, 1993 – President Bill Clinton signs the Omnibus Budget Reconciliation Act of 1993 (OBRA), Pub. L. 103-66. OBRA ’93 requires most qualified plans to adopt a mandatory amendment, known as the OBRA Amendment or the 401(a)(17)/401(a)(31) Amendment, to incorporate 2 changes to plan document language.
The first change, effective Jan. 1, 1994, required a change to the plan’s definition of compensation, adjusting the annual compensation limit to $150,000 as adjusted by the Commissioner for increases in the cost of living in accordance with Code section 401(a)(17).
The second change, effective Jan. 1, 1993, required a change to the plan’s direct rollover provision to allow distributions made on or after Jan. 1, 1993 to be paid directly to an eligible retirement plan specified by the distributee.
Additionally, for group health plans, OBRA ’93 defined qualified medical child support orders and required plans to provide benefits in accordance with such orders. It also expanded the definition of dependent to include dependent children placed with participants or beneficiaries for adoption.
During the 2-year life of a Congressional session, many bills are introduced and few are worth actually following. On July 27, 2012, Sen. Tom Harkin (D-IA) proposed a new type of 401(k) plan which is worth keeping an eye on. No details are available yet other than a 10-page report he released on July 27, 2012, and a quick check of Thomas.gov today did not find the text of a bill introduced by Sen. Harkin containing these proposals. The reason this is worth mentioning is that Sen. Harkin is the Chairman of the Senate Committee on Health, Education, Labor and Pensions, which is where 90% of the bills about retirement, pensions and ERISA go after they are introduced. While any Senator can introduce a bill about pensions, retirement and/or ERISA, the real work doesn’t start until the bill is referred to the Senate Committee on Health, Education, Labor and Pensions.
The 10-page report proposes creating Universal, Secure and Adaptable (USA) Retirement Funds, a private pension plan containing both elective deferrals and non-elective contributions which would be pooled and professionally managed with the fund overseen by a board of trustees. Distributions would be available through a lifetime income benefit funded by a participant’s total amount of contributions adjusted for investment performance over time with low-wage workers eligible for refundable retirement savings credits contributed directly to the fund. Employers would have no fiduciary responsibility for employees who participate in this plan.
For those of you who have been working with 401(k)s for a while, some of these proposals may sound familiar. When the idea of a solo 401(k) was first floated many years ago, the original proposal included many of these ideas, including allowing individuals to participate without assessing fiduciary responsibility to their employers. I’ll follow-up with more details when the bill is introduced and as information becomes available.
July 18, 1984 – The Deficit Reduction Act of 1984 (DEFRA), Public Law 98-369, is signed into law by President Ronald Reagan. It changes many sections of the Internal Revenue Code affecting qualified plans, ultimately resulting in a mandatory restatement of plan documents to incorporate those changes. That restatement becomes known as TEFRA-DEFRA-REA restatements (TRA ’86 was the previous generation of plan documents).
In December of 1984, the Joint Committee on Taxation writes a 1,275 page analysis of DEFRA, 129 pages of which are devoted to the changes DEFRA made to qualified plans.