WASHINGTON - The pension bill that Sen. Chuck Grassley helped to shepherd through Congress contains some of the most generous tax incentives ever passed to help workers save for retirement. Grassley, as chairman of the tax-writing Finance Committee, has worked to enact many of the provisions since becoming chairman in 2001.
“This legislation makes a generous investment in workers’ retirement," Grassley said.
“Congress is saying it’s a wise use of tax breaks to help people create a nest egg. I hope these incentives will help to turn around our very low national savings rate. Unfortunately, we have nowhere to go but up. This should help steer us in the right direction."
The Pension Protection Act of 2006, given final Senate approval by a 93-5 vote last night,
now goes to the President for his expected signature. The bill contains the most sweeping reforms of pension funding rules since 1974, helping to guarantee that companies uphold their pension promises to workers. The measure permanently extends pension and savings tax incentives that were part of the major 2001 tax bill. The bill includes:
• An increase in the annual contribution limit for tax-favored Individual Retirement Accounts
(IRAs). Under current law, the limit increases to $5,000 in 2008 and is indexed for inflation thereafter. Without congressional action, that limit was set to return to $2,000 by 2011. This provision alone costs $36.2 billion over 10 years, representing a big investment in workers’
futures.
• “Catch-up contributions" that allow people age 50 and over to make additional $1,000 contributions to IRAs each year and up to $5,000 contributions each year to 401(k) plans to boost their nest eggs.
• An increase in the contribution limits on 401(k) plans, which rise to a maximum $15,000 in
2006 and are indexed thereafter.
• Permanence of a saver’s tax credit aimed at lower income taxpayers, a top priority for Grassley. The credit, which otherwise would expire in 2006, is designed to encourage lowerincome workers to save in tax-qualified accounts.
In 2003, some 5.4 million taxpayers took advantage of the saver’s credit, available to married taxpayers with incomes of up to $50,000 and singles up to $25,000 on contributions of up to $2,000.
The maximum credit is 50 percent for married couples making up to $30,000 and singles up to
$15,000, and it phases out after those income levels.
• Incentives to encourage automatic savings mechanisms by 401(k) plan sponsors. It provides legal protections, known as a “safe harbor," to encourage companies sponsoring plans to implement automatic savings mechanisms for defined contribution plans.
• Increased flexibility and favorable tax treatment to allow individuals with annuity and life insurance contracts with a long-term care insurance option to use the cash value of their annuities to pay for long-term care insurance. This will give individuals more options to pay for their long-term care needs and make long-term care insurance more affordable for them.
A summary of the Pension Protection Act of 2006 can be found in the printer-friendly version of this release.
More information is available at:
JCX-38-06: Technical Explanation Of H.R. 4, The "Pension Protection Act Of 2006," As Passed By The House On July 28, 2006, And As Considered By The Senate On Aug. 3, 2006 http://www.house.gov/jct/x-38-06.pdf
Source: Ranking Member’s News
