Retirement insights from a Colorado PERA perspective

Legislation & Governance

Senators Try to Revive Retirement Bill

dodd-frank

More than 87,000 PERA members have retirement savings in a PERAPlus 401(k) or 457 account. Rules that govern those accounts could soon change. If the bill becomes law, a person could keep money invested longer and take out up to $5,000 upon the arrival of a new child, among other changes.

In May, the Setting
Every Community Up for Retirement Enhancement Act of 2019
(SECURE
Act) was approved by the U.S. House with 99 percent of the vote—an
overwhelmingly bipartisan tally. Colorado Rep. Ed Perlmutter was a bill
cosponsor, and all seven members of the Colorado congressional delegation—four
Democrats and three Republicans—voted in favor of the bill.

After
the SECURE Act passed the House, it moved to the Senate. While some
expected

a quick passage by unanimous
consent
,
opposition from three senators has
slowed

the bill’s momentum. Sens. Cruz, R-Texas, Toomey, R-Pa., and Lee, R-Utah, all
reportedly have concerns about components of the bill. The bill could still
pass with a majority vote, but it would
require a lengthier process
.

In October, seven Republican Senators,
including Colorado Sen. Cory Gardner, wrote a
letter

to McConnell, in which they urged passage of the bill.

What the
SECURE Act does

Increase
access to retirement plans

About one third of U.S.
workers do not have access to workplace retirement plans, like a 401(k) or defined
benefit (pension) plan. The SECURE Act seeks to expand access to retirement accounts,
making it easier and more affordable for businesses, particularly small
businesses, to offer retirement plans. Every Colorado PERA member already has
the opportunity to have
both a defined benefit plan and a 401(k).

Raise the Required Minimum Distribution age to 72

The advantage to saving money in a qualified retirement plan, like a 401(k), boils down to two tax benefits: Contributions made to these accounts are made with pretax deductions from a person’s paycheck, and profits from the sale of investments in these accounts are not subject to the capital gains tax. Distributions from these accounts in retirement are taxed as ordinary income. Currently, retirees are required to begin taking distributions from these account no later than age 70.5, a rule known as Required Minimum Distribution (RMD). The SECURE Act would raise the RMD age to 72, giving retirees a few more years of tax-free growth. (You can find RMD calculators like this online).

The SECURE Act also would alter the following:

  • Parents could withdraw up to $5,000 from retirement accounts within the first year of giving birth or adopting a child.
  • Currently, a person can make contributions to an IRA until they reach the age of 70.5. The Act would remove this age cap.
  • Say you retire with a 401(k) balance of $175,000. Understanding how much you can expect to be able to spend per month without depleting the account can be difficult. The Act would require providers of defined contribution accounts to demonstrate how an account balance might translate to monthly lifetime income through the purchase of an annuity or similar product.
  • An IRA accountholder can designate a beneficiary—a person who receives the IRA upon the accountholder’s death. Currently, the beneficiary is able to spread out tax-free distributions over his or her lifetime while taking advantage of continued tax-free growth. The bill would limit the amount of time a beneficiary has to withdraw all funds from the IRA to 10 years. A beneficiary who is the spouse of the original IRA accountholder would be exempt from this rule.

Defined benefitA mandatory retirement savings plan in which a participant’s future benefits are known or can be calculated, but contributions are subject to adjustments. Defined contributionA voluntary plan in which participants can save pre-tax income for retirement. Contributions are “defined” by the employee, but the future benefit is not guaranteed.

Comments

  1. Timothy Schneider says:

    I believe the bill is a good one.

    • Chris Richards says:

      Without repeal of the WEP, SECURE is not particularly helpful to the average citizens who are affected. WEP first, because it is arbitrary, and incredibly unfair to so many, then address those other things that were already somewhat reasonable, if not a bit outdated. The politically motivated ‘reasoning’ for forming the WEP in the first place is severely flawed, it needs to go.

      • Fran Aguirre says:

        Thank you for saying this. Yes, WEP needs to go. WEP was enacted to punish those states that did not roll their plan into social security. I receive 1/3rd of the social security I paid into instead of the full amount I am due because I am also receiving PERA which I also paid into.

    • David L. Farrell says:

      And why is it good? It allows an additional 1 1/2 years of tax deferred growth of investments. Good for the relatively few who can afford to postpone withdrawal. It allows withdrawing $5k for the birth of a child without requiring that the investor understand the long term impact on their retirement income of the withdrawal. It is not “free” money. You are stealing from your retirement to fund current expenses. The requirement of showing you the potential annuity value of your funds is not bad. But each investor can already ask for that. And has the potential for huge abuse if the provider does not have a fiduciary responsibility (ie. legal obligation to act for your benefit vs their own) to provide good guidance. And the R’s have stripped the requirement. Finally, currently your heirs can save your retirement money for their own retirement use. I want my children to have that support in their time of need. Under this change they will be required to withdraw and spend it now (and be taxed heavily for doing that) instead. So, still support this law? Tell me why?

  2. Melissa Rickson says:

    Does any of this legislation include the WEP/GPO concerns? I don’t see any of that. Does that stay a separate bill or is it dead?

    • PERA On The Issues says:

      Hi Melissa,
      This piece of legislation does not deal with WEP/GPO issues.

      Two bills that do deal with Social Security are currently in the U.S. House. Chair Rep. Richard Neal (D-Massachusetts) introduced HR 4540, Public Servants Protection and Fairness Act, and ranking member Rep. Kevin Brady (R-Texas) reintroduced HR 3934, Equal Treatment of Public Servants Act.

      • Wendy Rice says:

        Why not piggy back it on the bill – at least it is relevant-compared to times they add something into a bill just to slide it thru. Example highway appropriation attached to education. (????)

      • Adolph Lopez says:

        WEP….so many of us held part time employment during the first ten years of teaching in order to provide the needs of our families. All along, we received annual statements from Social Security with the projected benefits we would receive at retirement. Granted, these jobs were part time, but we did pay into Social Security. We trusted that we would receive our benefits as indicated in our annual statement.
        Why not return our monies with a 2% dividends! There are only six states plus The District of Columbia where public school teachers and firemen are affected/effected! Thank you for listening. Hopefully you will use your power to make us whole.

      • David Brick says:

        And what is PERA’s positions on these bills and what are they doing to promote those positions? These are the bills that really matter to many of us PERA retirees and future retirees.

        Those who retire with the military receive a pension from the military AND FULL UNDIMINISHED SS BENEFITS. Without wishing to reduce their benefits — they have earned them — I do question why others who have paid into both SS and PERA have their SS benefits reduced. Where is the consistency?

  3. Pamela McMillen says:

    How about Repealing the Windfall Elimination Act?? This is a top priority for thousands of retirees!! Is there any congressional member even bothered by this Act?? We will be voting soon, it will make a big difference to me and thousands of other retired folks and we Are Watching!!! That money was supposed to be for our retirement and there are thousands of us who put our money in the SS fund so we would have it there when we retired! Government never put a cent toward that fund, it was us and our employers who put that money in that fund!!! Government has NO right to steal from it, and every cent needs to be put back in the fund!!!

    • Wendell logan says:

      Even though I paid into social security for 24 years I was credited with 21 years of significant earningsI lost 45 percent of what I would have received. Five percent for each year on non significant earnings. Seems like a harsh penalty especially when congress can get benefits after only five years.

    • Josephine Garner says:

      H.R. 141 Repeals the Windfall Elimination and the Government Pension Offset. It is currently in Ways and Means …I believe. The last time I checked, it had approx. 208 cosponsors. If it makes it out of that committee, I think it goes to the House for signatures. I write letters to my public officials weekly. Also look on line for petitions to sign. Google it and ask for updates. Let’s keep Hope Alive…I believe it will happen !!!!
      Josephine

    • Kay K O'Clair says:

      YES…people don’t even believe me that this is true. Thankful for PERA, of course. But many years of employment outside of school districts gave me sufficient credits toward Social Security–that I had paid.

    • Dora Jaramillo says:

      I agree with Panela McMillen, the Government has no right to steal our money. We didn’t give to them they took it from our payroll checks.

    • Fran Aguirre says:

      Yes!

  4. Lynn Acker says:

    None of the proposed changes would affect an employers interaction with PERA 457…. an employee yes, but not an employer.

    • S Shipley says:

      oh and don’t forget you get ZERO of your deceased spouse’s Social Security! Who decided upon this?????? The money my spouse of 30 years goes to WHO? NOT ME….because I taught school??????

  5. Linda White says:

    I agree with Pamela. An IRA and 401K are good benefits, at least we get the full amount expected. Why are we punished unfairly by having our social security cut. That is OUR money– We EARNED, not someone else. We have a Right to our full social security before someone gives it away…to someone who did not earn it. I planned on that money to retire but have had to adjust my future. Not my fault someone didn’t plan ahead. If there are people in need, I deserve to share it with whomever I choose, not the government. I would be happy to have a lump sum now.

  6. andrew burns says:

    Why force a non spouse IRA beneficiary to use the funds within 10 years? That forces a person to incur taxes they may wish to defer, and limit growth. Only Uncle Sam benefits there. It doesn’t seem right that the government forces a beneficiary to use funds that someone worked for, saved, risked, and may already have paid taxes on. That decision should be the beneficiary’s alone to make. IRS already has required minimum distributions annually.

  7. regina macy says:

    It’s simple logic. PERA employees not putting money into PERA will ultimately destroy the health of PERA. We need contributions to keep the system alive.
    I remember when they tried to do this to Social Security. Everyone got quiet when the stock market fell apart.

  8. Cari Silvey says:

    Agreed! They need to eliminate the Windfall Act – especially for those who have paid in for 20 years or more!’

  9. Chris Richards says:

    If you have a 401K from multiple employers, or a 401K + real estate investments, or any number of other of retirement vehicles such as annuities, bonds, whole life insurance etc, etc… then there’s zero impact on Social Security benefits. To declare that someone is “double dipping” ONLY when PERA benefits are involved is a travesty. WEP should be applied evenly across the board to ANY AND ALL retirement investments… or not at all.

  10. Alex Karami says:

    How about Repealing the Windfall Elimination Act?? There are many of us retirees with years of SS deduction that are not being compensated due to WEP. Please make a routine update on this bill and send us reminder emails to forward to our representative to urge them get it approved.

    Thank you!

  11. Alejandro Aguirre says:

    This sounds like a great idea. Question also is why doesn’t the Members of Congress get rid of the Windfall Tax Elimination Act? The eveyday citizen of the United States works hard for there families to make a better life for there kids etc. only to get penalized by our own federal Government that wants to take away everything they can from hard working individuals. The other concern is like with the 457 plan that I am enrolled in, do you know that after you retire if you need some extra money to take care of everyday living or in my case having to build a wheelchair ramp for my wife or for medical expenses, the Federal Government taxes what you withdraw from your account a whopping 20%??

  12. Bruce A. Troutman says:

    This is a BAD bill. Hopefully, it will NOT make it through the Senate. The provision in this bill that would require a non-spouse beneficiary of an IRA to withdraw all funds within ten (10) years is extraordinarily detrimental to retirement and longevity and estate planning (see the last bullet point of the article). This provision was added in order to “pay for” the bill and make it revenue neutral (offset the loss of tax revenue due to allowing a later start for RMD’s and lifting of the age ceiling for contributing to a tax deductible IRA). In fact, what it will actually do is accelerate and increase income tax receipts for the Federal and State governments by accelerating required withdrawal rates from IRA’s and increasing the effective tax rates on those withdrawals. In other words, it will SUBSTANTIALLY LESSEN the value of your IRA as a retirement and longevity and estate planning asset. If this bill passes, DON’T EVEN THINK ABOUT designating a grandchild as a beneficiary. It will wreak havoc on post-secondary education financial aid calculations and eligibility. Call or write to Senators Gardner and Bennet and urge then to NOT support or vote for this bill in its current form.

  13. Gloria Davis says:

    You people obviously did

    You people obviously did not read the windfall act. You obviously do not understand the purpose of the windfall act. It was meant to pact those people who did not ever pay into social security. Retirees were drawing both social security and PERA pension without ever paying one penny into social security. The windfall act was put in place to prevent this. If you have 30 yrs in social security you are not impacted. Which would you rather have PERA or Social Security. I’ll keep PERA thank you very much. Look at how much you paid into social security. Not much.

  14. Rick Moss says:

    I agree that WEP should be eliminated! In addition to working for the State of Colorado for over 30 years, I also paid into Social Security AND Medicare for 38 quarters. I don’t get any of that money back since I didn’t get 40 quarters in; but even if I had got 40 quarters in I still wouldn’t get all my money back because of WEP. I believe a person should be entitled to get their full retirement benefits from every employer they worked for if the person paid into every employer’s retirement program – be it Social Security, PERA, or some other retirement plan.

  15. Gerald Mergl says:

    All members who have had SS benefits reduced because of WEP, need to have all their social security paid to them. They also need to have all reductions in SS refunded to them. Very unfair to the public servants whom paid into both retirement funds.

Leave a Reply

Your email address will not be published. Required fields are marked *

Subscribe To Stay Up To Date

  • Share

  • Print