Transcript Federal Legislative and Regulatory Issues Affecting State

Federal and State Legislation
Affecting Public Pension Plans
2007 TMRS Training Seminar
October 15, 2007
Austin, TX
Jeannine Markoe Raymond
Director of Federal Relations
National Association of State Retirement Administrators
Leading Federal Issues for
Public Pension Plans
• Implementation of the Pension Protection Act
(PPA) of 2006
 Healthcare Enhancement for Local Public Safety
(HELPS) Retirees
 Interest Rate Cap on DB Plans
 Added Exception from 10% Early Distribution
Penalty for Public Safety
• Increased Media and Regulatory Scrutiny of
Public Pension Funding, Regulation &
Investments
• The New Federal Legislative Landscape
• Making the Case for Public Pensions
HELPS (Healthcare
Enhancement for Local Public
Safety) Retirees
• Up to $3K May Be Excluded from Income
Tax for Health Care or Accident Insurance
Premiums of those that Retire as a Public
Safety Officer
• Treasury Recently Reversed Guidance
Stating the Accident or Health Plan Could not
be a Self-Insured Plan, Predicated on
Technical Correction
• Requirement that Transfer Must be Made
Directly by DB or 457 Plan to Insurer
• 1099 Instructions/IRS Discussions Indicate
No Special Reporting Requirements,
Interest Rate Cap on DB Plans
(Sec. 701 of PPA)
• Any DB Plan or Feature that Credits Interest is
Considered a Hybrid DB Plan
• Age Discrimination in Employment Act (ADEA)
Amendments Apply to Gov Plans
Conversion Requirements
Equal Treatment of Similarly Situated Employees
Interest Credit Must be BELOW a “Market Rate of
Return”
 TMRS, TCDRS, Refund Features in ERS and other plans,
DROPs, Survivor Benefits, etc.
• Working on Technical Correction for Governmental
Plans to treat Rates of Interest Established by a
Public Process (i.e. statute, ordinance,
administrative procedure, etc.) as “Market Rates of
Return”
Exception from 10% Early
Distribution Penalty
• Separation from Service on or after Age
50 (rather than 55) for Public Safety
Officers
• Treasury Affirmed this Applies to Gov DB
Distributions After 8/17/06 Only
Recapture Tax Applies to Distribution Before
Effective Date
Exception Does Not Follow Rollovers to
Other Plans
Federal Divestment
Initiatives
• Hearings and House-Passed Legislation on
Iran (HR 2347) and Sudan (HR 180)
 Federal List of Bad Actor Companies
 Iran’s energy sector (>$20mil) or Sudan’s power
production, mineral extraction, oil-related, or military
equipment industries.
 Update Every 6 months, Give Advance Notice, Provide
Exceptions
 Prohibit Federal Procurement Contracts with Companies
on List
 Permissive, Not a Mandate
• New SEC Website Launched, Removed
Critical Eye on Adequacy of Public
Plan Funding, Regulation and
Investments
• Media Coverage Fueling Taxpayer Pension
Envy
 Citing the Potential Conflict Between Long-term
Liabilities and Shorter Time Horizon of Political
Decision-making
 Distorting the True Financial Condition of Public
Pensions in General
 Extrapolating a Handful of Problems onto Entire
Public Pension Community
 Advancing Arguments Reflecting an Incomplete
Understanding of Public Pension Issues
Critical Eye on Adequacy of Public Plan
Funding, Regulation and Investments
• Heightened Federal Regulatory
Environment
 Treasury/IRS
 EEOC Litigation
 SEC Proposals to Regulate Municipal
Securities, Oversee and Mandate GASB
Standards
New Federal Legislative
Landscape
• More Committees Interested in Pension Issues (Tax,
Labor & Investment)
• Increased Focus on DC Fees, Financial Relationships
with Sponsors and Providers
• Greater Concern with Coverage Levels than Benefit
Levels (Shift from Improving Employer-Sponsored
Benefits to Covering Individuals Without Benefits)
• Social Security Solvency (likely through changes such
as progressive indexing, increasing eligibility age and
wage cap) coupled with add-on universal savings
proposal could be the “Great Compromise”
 GPO/WEP Reform Will Be Difficult to Move Separate
from Solvency Reforms and Will Likely Need an Offset –
Concern Mandatory Coverage is the Most Likely “Payfor”
Legislative Landscape, cont.
• “PAYGO” Rules Require Offsets for All Spending
and Tax Expenditures & Heighten Desirability of
Pay-Fors
• Need to Keep a Close Watch on Increasing
Search for Revenue:
 3% Withholding on Government Purchases of Property and
Services Included in Reconciliation Bill Passed in May 2006
(Effective 2011)
 Proposed Changes to Taxation of Alternatives
 Suggested repeal of pick-ups, application of FICA to cafeteria
plans
 Roth 457 (~$1B pay-for)
• Reevaluation of Pension Policy – With the
Limited Percentage of Covered Individuals Can
the Largest Tax Expenditure ($124.5B in FY06)
Making the Case for Public Sector
Benefit Designs as National
Pension Policy is Reexamined
Public Pension Plans Have Been
“Getting it Right”
Value of Public Pensions to ALL
Stakeholders
• Source of Long-Term Investment Capital
• Attract and Retain Experienced and Trained
Employees to Delivery Vital Public Services
• Reduce Dependence on Social Programs
• Distribute Robust, Steady and Reliable Income
Streams (totaling more than $140 Billion in
2006) to 7 Million Retirees in Virtually Every
City and Town in the Nation
 Exceeds the personal income generated in the U.S.
from farming, forestry and logging, fishing and
hunting, and the hotel and lodging industries
COMBINED!
Efforts by TMRS and
Others
• Helping Policymakers Understand
Public Plan Design
• Relaying the Value of Public
Retirement Systems to Other
Stakeholders (Governments,
Taxpayers)
• Communicating Value of Benefits to
Existing and Potential Employees