U.S. tax reform – retirement plan differences to be reconciled
Now that the House of Representatives and the Senate have passed their own versions of H.R. 1, the Tax Cuts and Jobs Act, a tug-of-war on a compromise that both bodies can pass is in full force. Congress is following the normal legislative process by setting up a Conference Committee to reconcile the differences between the two competing bills – as each chamber must pass identical bills before it can go to the President for his signature. While this tug-of-war officially is between the members of the House and Senate appointed to the Conference Committee, informal, behind-the-scenes negotiations are likely to have an outsized impact on the contest.
The differences in the retirement plan provisions will not make any splashy headlines, but they are, nonetheless, worth noting.
The retirement plan provisions in the House-passed bill have not changed from the version released by the Ways and Means Committee in early November. We wrote about them in a previous post.
There has been a bit more action on the retirement plan provisions in the Senate. The tax reform proposal passed by the Senate Finance Committee (on November 16) contained the retirement plan provisions described previously – but the version passed by the full Senate (on December 2) was quite different. It does not contain any of the retirement plan provisions that were in the version approved by the Senate Finance Committee. The full Senate, however, added two of the retirement plan provisions that are in the version of the bill passed by the House. Specifically, the Senate version includes (a) the repeal of an existing rule that allows the re-characterization of IRA contributions and conversions and (b) an extension of time during which employees with outstanding loans from their retirement plans can repay the loans before the loan is deemed a taxable distribution.
The Senate bill also incorporates the Length of Service Award Program Cap Adjustment Priority Act, legislation introduced earlier this year by Rep. Peter King (R-NY) that increases the amount that certain plans can pay to bona fide volunteers for firefighting and prevention services, emergency medical services, and ambulance services without having the plans treated as deferred compensation plans.
Notably, the Conference Committee’s rules, generally, prohibit the addition of new provisions to a bill in Conference, as well as the elimination of provisions that are included in both the House and Senate versions. Instead, the Committee must reconcile the House and Senate versions by adopting or rejecting any provision contained in only one version of the bill. Thus, it is highly unlikely that there will be wholesale changes to the tax treatment of retirement plans at this stage in the process.
Unlikely, but not impossible. Even though Conference Committee members are not supposed to add items that are not already contained in either version of the bills being reconciled, there are ways around the rule and, on occasion, new items do find their way into a Conference Committee bill.
Stacey Grundman also contributed to this post.