Problems With State and Local Deferred Pay Plans Outlined
Problems With State and Local Deferred Pay Plans Outlined
- AuthorsBonior, Rep. David E.Towns, Charles E.Brock-Smith, CynthiaWilliams, Floyd L.
- Institutional AuthorsU.S. House of RepresentativesInternal Revenue ServiceU.S. Office of Personnel Management
- Code Sections
- Subject Area/Tax Topics
- Index Termsyear of inclusion, pension plan distributions, state and localpension plans, cash or deferred arrangementsannuities, employee, exempt organizations
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2000-8753 (7 original pages)
- Tax Analysts Electronic Citation2000 TNT 58-17
=============== SUMMARY ===============
Rep. David E. Bonior, D-Mich., has forwarded a letter from a constituent to the Office of Personnel Management, which in turn has forwarded it to the IRS.
In the letter, constituent Charles E. Towns outlines several problems with state and local deferred pay plans under section 457, including the inability to effectuate a rollover, a lower cap on contributions, and no ERISA coverage. He suggests blending the plans into a plan similar to a 401(k).
In response, the IRS says it has forwarded Towns's letter to Treasury's Office of Tax Policy.
=============== FULL TEXT ===============
September 27, 1999
Office Of Personnel Management
Ms. Janice Lachance
Director
1900 E. Street, NW
Washington, DC 20415
Dear Ms. Lachance:
[1] I wanted to bring to your attention a letter I received from one of my constituents, Mr. Charles Towns, regarding different pension plans. I respectfully request that you look into this matter and respond to Mr. Towns accordingly.
[2] Thank you for your attention to this matter.
Sincerely,
David E. Bonior
Member of Congress
* * * * *
July 2, 1999
Congressman Bonier
2207 Rayburn House Off. Bldg.
Washington, D.C. 20515
Dear Congressman Bonior:
[3] As a long time supporter, I would like to bring an inequity to your attention. It involves deferred compensation for local government employees. As you know, private industry can offer 401's, school districts can offer 403's and local units of government can offer 457's, similar, but different deferred compensation plans.
[4] The problems with 457 plans are: not being able to "roll over" your account into an IRA as you can in a 401 or 403; a lower cap on contributions; E.R.I.S.A. does not cover 457 plans; and to my knowledge all of them are variable annuities (thereby increasing costs). In my view the 457 plans (and to an extent the 403(b)) are inferior to private industries' options. Blending these plans into one plan like the 401(k) would improve the situation and most likely not cause any measurable loss in taxes. It should also substantially reduce complexity in the tax code and increase potential income for local government employees (by eliminating the cost of an annuity), eventually increasing taxes. Any time you can reduce complexity you increase voluntary compliance and reduce costs for the I.R.S.
[5] Please try to modify the requirements of deferred compensation plans making them consistent with 401's while simplifying the tax code. When public employees understand the issues they'll appreciate what I consider a correction. Thank you for your continued efforts on our behalf.
Sincerely,
Charles E. Towns
Port Huron, MI
* * * * *
September 27, 1999
Mr. Charles E. Towns
2803 Maywood Drive
Port Huron, MI 48060
Dear Mr. Towns:
[6] Thank you for contacting me regarding the different pension plans in the public sector and their various benefits. I understand your desire to ensure that all employees are treated fairly and equally.
[7] I have forwarded a copy of your letter to the Office of Personnel Management and have asked that they address your concern and respond accordingly.
[8] As always, please do not hesitate to contact me if I can be of service.
Sincerely,
David E. Bonior
Member of Congress
* * * * *
January 11, 2000
Floyd L. Williams III
National Director,
Legislative Affairs
Department of Treasury
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Dear Mr. Williams:
[9] We received the enclosed letter from Representative David Bonior, requesting that we reply directly to his constituent, Mr. Charles Towns. A careful review of Mr. Towns inquiry indicates that he is most concerned about the tax treatment of various investment plans. Since the Office of Personnel Management does not have any responsibility or expertise in these matters, we are referring the letter to you in the hope that you can be of assistance to Mr. Towns and Representative Bonior. We have advised the Congressman that the letter is being referred to your office for a response.
[10] If you have any questions or require assistance from the Office of Personnel Management please feel free to call me at (202) 606-1300.
Sincerely,
Cynthia Brock-Smith
Director
U.S. Office of Personnel
Management
Washington, D.C.
Enclosure
* * * * *
January 11, 2000
Honorable David Bonior
U.S. House of Representatives
2207 Rayburn HOB
Washington, D.C. 20515
Dear Representative Bonior:
[11] Your office forwarded to us a letter from a constituent, Mr. Charles Towns, requesting that we research the matter referenced in his letter and respond directly to him. Mr. Towns wrote concerning what he believes are inequities in the way deferred compensation is treated in various types of investment/pension accounts. The Office of Personnel Management administers the retirement systems for Federal employees, but does not have any responsibility or expertise in tax matters or investment plans. Therefore, we are transmitting both your letter to OPM and Mr. Town's letter to the Internal Revenue Service in the hope that they may be in a position to comment on the issues raised.
[12] If you have any further questions for the Office of Personnel Management please feel free to contact me at (202) 606- 1300.
Sincerely,
Cynthia Brock-Smith
Director
United States Office of Personnel
Management
Washington, D.C.
Enclosure
* * * * *
The Honorable David E. Bonior
House of Representatives
Washington, DC 20515-2210
Dear Congressman Bonior:
[13] This letter is in response to your inquiry dated September 27, 1999, on behalf of your constituent, Mr. Charles Towns, of Port Huron, Michigan. Mr. Towns asked for a modification of the requirements of deferred compensation plans. As requested, we responded directly to Mr. Towns. Enclosed is a copy of our letter.
[14] If you have any further questions regarding this matter, please call me at (202) 622-3720 or have a member of your staff contact Bonnie Alexander, Badge No. 50-09061, at (202) 622-3730.
Sincerely,
Floyd L. Williams
Department of the Treasury
Internal Revenue Service
Washington, D.C.
Enclosure
* * * * *
Mr. Charles E. Towns
2803 Maywood Drive
Port Huron, MI 48060
Dear Mr. Towns:
[15] Congressman David E. Bonior forwarded your letter regarding the problems you are experiencing with a Section 457 Deferred Compensation Plan. You suggest that the tax code be modified by changing the requirements of deferred compensation plans to make them consistent with 401 plans. As the Department of the Treasury's Office of Tax Policy is responsible for analyzing and developing changes to the tax code on behalf of the Administration, I am forwarding your correspondence to that Office for consideration.
[16] Although your suggestion is appreciated and will be considered in developing and analyzing the Administration's tax policies, you may not receive a written response or even an acknowledgment, from the Office of Tax Policy due to their limited resources and heavy workload. Please also note that most Office of Tax Policy correspondence is released on a weekly basis under provisions of the Freedom of Information Act.
[17] If you have any questions about this referral, please call me at (202) 622-3720 or Bonnie Alexander, Badge No. 50-09061, at (202) 622-3730.
Sincerely
Floyd L. Williams
Department of the Treasury
Internal Revenue Service
Washington, D.C.
cc: Assistant Secretary (Tax Policy)
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220
The Honorable David Bonior
House of Representatives
Washington, DC 20515-2210
- AuthorsBonior, Rep. David E.Towns, Charles E.Brock-Smith, CynthiaWilliams, Floyd L.
- Institutional AuthorsU.S. House of RepresentativesInternal Revenue ServiceU.S. Office of Personnel Management
- Code Sections
- Subject Area/Tax Topics
- Index Termsyear of inclusion, pension plan distributions, state and localpension plans, cash or deferred arrangementsannuities, employee, exempt organizations
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2000-8753 (7 original pages)
- Tax Analysts Electronic Citation2000 TNT 58-17