ICMA-RC Commends Congress for Supporting EGTRRA Permanency and Retirement Reform

August 9, 2006

ICMA-RC, a market leader in public sector retirement security, commends the efforts of the House - Senate conferees that led to the final passage of HR 4, the Pension Protection Act of 2006 on Aug. 3. Among the bill's key provisions is to make permanent retirement provisions in the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001. EGTRRA allows for higher contribution limits for retirement plans and IRAs, more flexible plan rules, portability, and a catch-up provision for those over 50, all of which have helped employees build their retirement savings in employer plans.

"ICMA-RC has actively supported EGTRRA permanence. We even urged our plan sponsors to do so too, with a recent letter writing, and education campaign on our Web site. We are delighted that these efforts and the work of House and Senate leaders have led to EGTRRA being made permanent as part of the Pension Protection Act," says Joan McCallen, president and CEO of ICMA-RC. "As a result, the retirement savings programs for public employees will be stronger and the appeal of public service has been enhanced. Now we look forward to the President signing it into law."

Experts predicted a major set-back for retirement planning and security for employees in both the public and private sector if EGTRRA were allowed to expire in 2010. Had EGTRRA been allowed to expire, it would have meant changes to retirement savings options, which many believe would have had serious consequences. For example, the annual contribution limits for individuals saving in retirement plans-now set at $15,000-would have reverted to a pre-EGTRRA limit of $8,500 (plus indexing subsequent to 2001). IRA limits also would have been rolled back from the phased-in $5,000 (in 2008) to a pre-2001 $2,000 annual limit. The Pension Reform Act will allow plan sponsors and participants in the public and private sector to build retirement security without fear of disruption.

The key defined contribution/deferred compensation provisions of the Act:

• waive the 10 percent penalty tax for early distributions from a defined benefit plan for public safety employees and lowers allowable age from 55 to age 50;
• allow for up to $3,000 in distributions from retirement plans for health and long-term care for public safety officers who retire or are disabled;
• allow for direct rollovers from plans to Roth IRAs instead of the current two-step process;
• allow rollovers by non-spouse beneficiaries of certain plan distributions for one year, and,;
• extend and update the Savers Credit, which provides a tax credit for lower wage employees saving in their employer plans.

"The retirement plans that public and private sector employers offer are an important savings vehicle that allows employees to contribute money now to ensure their retirement security later," says McCallen. "They are a valuable supplement to state defined benefit plans. Both employers and employees needed the current EGTRRA provisions to remain in law in order to adequately plan for and build their retirement security. Making EGTRRA permanent is an important step toward ensuring long-term retirement security."

Additional information on ICMA-RC's efforts to promote the passgae of EGTRRA permenancy can be found in our Legislative Report Section.