On July 19, 2000, the U.S. House of Representatives overwhelmingly passed H.R. 1102, "The Comprehensive Retirement Security and Pension Reform Act". H.R. 1102 was later incorporated into H.R. 5203, which was also overwhelmingly passed. The Joint Committee on Taxation ("JCT") estimates that H.R. 1102, if enacted, would result in a $16.1 billion reduction in federal tax revenues.

On September 7, 2000, the Senate Finance Committee ordered reported "The Retirement Security and Savings Act of 2000," which is similar to H.R. 1102. The JCT estimates that The Retirement Security and Savings Act, if enacted, would result in a $26.7 billion reduction in federal tax revenues.

A summary of the major provisions of H.R. 1102 follows.

Individual Retirement Arrangements.

1. Increase in IRA Contribution Limit. The annual IRA dollar contribution limit would be increased from $2,000 to $3,000 in 2001, $4,000 in 2002 and $5,000 in 2003, and indexed thereafter.
2. Catch-up Contribution. The IRA maximum contribution limit for individuals age 50 and over would be accelerated to $5,000 beginning in 2001, and indexed thereafter.

Significant Pension Plan Provisions.

1. Increased Dollar Limitations Generally.
1. The annual defined contribution dollar limitation under Internal Revenue Code of 1986, as amended (the "Code") section 415(c) would be increased from $30,000 (indexed in $5,000 increments) to $40,000 (indexed in $1,000 increments).
2. The annual defined contribution percentage limitation under Code section 415(c) would be increased from 25 percent of compensation to 100 percent of compensation.
3. The annual defined benefit dollar limitation under Code section 415(b) would be increased from $90,000 ($135,000 current limit, indexed in $5,000 increments) to $160,000 (indexed in $5,000 increments), and the early retirement and normal retirement ages used for purposes of applying the limit would be lowered to 62 and 65 respectively.
4. The limitation on the amount of compensation that may be considered for retirement plan purposes would be increased from $150,000 ($170,000 current limit, indexed in $10,000 increments) to $200,000 (indexed in $5,000 increments).
5. The current $10,500 annual limitation on salary reduction deferrals under a 401(k) plan and a 403(b) plan would be increased annually until it reaches $15,000 in 2005. Thereafter, the limits would be adjusted for inflation.
6. The current $6,000 annual limitation on salary reduction deferrals under a SIMPLE plan would be increased annually until it reaches $10,000 in 2004. Thereafter, the limit would be adjusted for inflation.
7. The annual limitation on Code section 457 deferrals would be modified to conform to the 401(k) plan and 403(b) plan deferral limits. The limit would be twice the otherwise applicable dollar limit in the 3 years prior to retirement.
8. The rules coordinating the section 457 dollar limitation with contributions under other types of plans would be repealed.
9. Individuals age 50 and over would be permitted to make "catch-up contributions" under a 401(k) plan, a 403(b) plan, a SIMPLE, or a 457 plan. The maximum additional contribution would be $5,000 (indexed commencing in 2006). The additional contributions would not be subject to other contribution limits, would not be taken into account in applying other contribution limits, and would not be subject to the nondiscrimination rules.
2. Employer Deductions.
1. For deduction calculation purposes, the definition of compensation would include elective deferrals under a 401(k) plan, a 403(b) plan, elective contributions under a 457 plan, and salary reductions under a 125 plan.
2. Elective deferrals would be excluded from the definition of employer contributions for purposes of determining the total amount of plan contributions that are deductible.
3. The current liability full funding limit would be increased to 160 percent of current liability for plan years commencing in 2001, 165 percent for plan years commencing in 2002, and 170 percent for plan years commencing in 2003. The current liability full funding limit then would be repealed effective for plan years commencing after December 31, 2003.
4. The annual limitation on the amount of deductible contributions to a profit sharing or stock bonus plan would be increased from 15 to 20 percent of the compensation of the employees covered under the plan.
5. The deduction rules would be amended to allow a deduction for funding up to the level of unfunded termination liability under Title IV of ERISA.
3. 401(k) and 403(b) Plans.
1. The top-heavy vesting rules (i.e., 3-year cliff or 6-year graded vesting) would apply to matching contributions even if the plan is not top-heavy. In addition, the proposed legislation would provide that a safe harbor 401(k) plan is not a top-heavy plan and that matching contributions under such plan may be taken into account in satisfying the minimum contribution requirements.
2. The "multiple use" test would be repealed.
3. 401(k) plans and 403(b) plans would be permitted to allow participants to elect "Roth" status, i.e., participants would be permitted to elect to have either a portion or all of their elective deferrals treated as "designated plus contributions" (i.e., after-tax contributions) so that later distributions of such contributions (and earnings thereon) would be tax-free.
4. The "same desk rule" would be repealed.
5. The 403(b) maximum exclusion allowance would effectively be eliminated.
6. The Secretary of Treasury would be directed to revise the safe harbor hardship withdrawal regulations to reduce from 12 months to 6 months the period during which an employee must be prohibited from making elective contributions and employee contributions in order for a distribution to be deemed necessary to satisfy an immediate and heavy financial need.
7. The Secretary of Treasury would be directed to revise the 410(b) regulations to provide that employees of a tax-exempt charitable organization who are eligible to make salary reduction contributions under a 403(b) plan may be treated as excludable employees for testing purposes under a 401(k) plan.
4. Rollovers.
1. Rollovers between 401(a) plans, 403(b) plans and 457 plans would be permitted.
2. Rollovers from any taxable IRA to 401(a) plans, 403(b) plans, and 457 plans would be permitted.
3. Rollover of a plan death benefit by a surviving spouse to such spouse’s 401(a) plan, 403(b) plan, or 457 plan, in addition to a rollover to an IRA, would be permitted.
4. Employee after-tax contributions would be permitted to be rolled over into another 401(a) plan or a traditional IRA.
5. The IRS would be given authority to extend the 60-day rollover period for certain events that are beyond the control of the taxpayer.
6. A rollover from a 401(a) plan to another 401(a) plan would be permitted only through a direct rollover.
5. Miscellaneous.
1. The excise tax for failing to make the minimum required distribution for a given year would be reduced from 50 percent to 10 percent. The Secretary of Treasury would be directed to update, simplify and finalize the minimum required distribution regulations.
2. The top-heavy rules would be modified to simplify the definition of key employee and would repeal the family attribution rule used to determine whether an individual is a key employee by reason of being a 5% owner.
3. For employers with 100 or fewer employees, the user fee for determination letter requests would be eliminated during the first five years of a retirement plan’s existence.
4. The qualified retirement plan distribution notice rules would be modified to require that such plan must provide the notice no less than 30 days and no more than 180 days (instead of the current 90 days) before the date distribution commences. The Secretary of Treasury would be directed to modify the applicable regulations regarding the extension of the notice period and to provide that the description of a participant’s right, if any, to defer receipt of a distribution must also describe the effect of not deferring receipt of the distribution.
5. In determining whether a participant exceeds the $5,000 "cash out" threshold, retirement plans would be permitted to disregard rollover contributions.
6. Loans to S-corporation shareholders and owner-employees would be permitted.
7. Notice rules would be added to the Code that would require (a) any defined benefit plan, and (b) any money purchase pension plan with 100 participants, to provide certain information to participants upon a reduction in future benefit accruals. An excise tax would be imposed for failure to comply with the notice requirements.
8. A defined contribution plan generally would be permitted to eliminate periodic forms of distribution under the plan as long as the plan retains the lump sum option.
9. A defined contribution plan (the "transferee plan") would not be required to protect all forms of benefit provided under another defined contribution plan (the "transferor plan") as long as certain requirements (including notice and participant consent) are met.
10. The taxation rules for qualified plan distributions pursuant to a QDRO would apply to distributions made pursuant to a domestic relations order for a 457 plan. Distributions to an alternate payee under a QDRO would not violate the 457 plan distribution restrictions.
11. Qualified retirement planning services provided to an employee by an employer maintaining a qualified plan would generally be excluded from the employee’s income and wages.
12. The Secretary of Treasury would be directed to (a) continue to update and improve EPCRS and (b) issue regulations that provide facts and circumstances opportunities for retirement plans to satisfy the nondiscrimination, coverage, and line of business rules.
6. Effective Date. Generally, the provisions would be effective for plan years commencing after December 31, 2000. However, plan amendments generally would not be required before the last day of the 2003 plan year.