Senate Tax Reform Proposal Takes Aim at 403(b) and 457(b) Plans

The Chairman’s Mark of the GOP tax reform proposal introduced in the Senate last week does some damage to 403(b) and 457 plans.

Under the proposal unveiled Nov. 9 by Sen. Orrin Hatch (R-UT), Chairman of the Senate Finance Committee, a single aggregate limit would be applied to contributions for an employee in a governmental Section 457(b) plan and elective deferrals for the same employee under a 401(k) or 403(b) plan of the same employer. The proposal would also repeal the special rules allowing additional elective deferrals and catch-up contributions under 403(b) plans and governmental 457(b) plans, so that the same limits will apply to elective deferrals and catch-up contributions under 401(k), 403(b) and governmental 457(b) plans.

Moreover, the proposal repeals the special rule allowing employer contributions to 403(b) plans for up to five years after termination of employment, and revises application of the limit on aggregate contributions to a qualified defined contribution plan or a 403(b) plan (that is, the lesser of either $54,000 (for 2017) or the employee’s compensation). “As revised, a single aggregate limit applies to contributions for an employee to any defined contribution plans, any section 403(b) plans, and any governmental section 457(b) plans maintained by the same employer, including any members of a controlled group or affiliated service group,” according to the Chairman’s Mark. The proposal is effective for plan years and taxable years beginning after Dec. 31, 2017. Also effective for taxable years beginning after Dec. 31, 2017, unless an exception applies, the early withdrawal tax applies to a distribution from a governmental Section 457(b) plan before age 59½ to the extent the distribution is includible in income.

This week the Senate is continuing to review that Chairman’s Mark, and will shortly begin to consider amendments to that proposal, which will eventually need to be approved by the Senate, and then coordinated with the House version. Regardless, it could be a bumpy road for 403(b) and 457 plans. Find out what you’ll need to know about the outcome — and how to prepare for the changes that could be coming down the road — at the newly redesigned NTSA Summit.

Get Prepared at the NTSA Summit!

In addition to being part of the 403(b) industry’s premier networking and information event, you’ll be able to take advantage of:

• a condensed day-and-a-half agenda

• first-time attendee orientation

• pre-conference “deep dives”

• the latest updates from Washington in “From the Hill to Houston — A Washington Update”

• NTSA Business Meeting and 2018 Elite Advisor Awards

• a robust agenda highlighting all you need to know on the DOL fiduciary rule, health savings accounts (HSAs), state advocacy and more!

Come be part of the NTSA Summit — the only meeting for professionals in the 403(b) and 457 marketplaces. It’s an extraordinary opportunity for you to learn, network and engage with your peers and the nation’s leading industry experts!

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