Legislature(2015 - 2016)
03/23/2015 03:00 PM House L&C
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB135 | |
| HB123 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 135-PUBLIC EMPLOYEE Roth CONTRIBUTIONS
3:21:50 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 135, "An Act establishing a Roth contribution
program for the public employees' deferred compensation program;
and providing for an effective date."
3:22:36 PM
JOHN BOUCHER, Deputy Commissioner, Office of the Commissioner,
Department of Administration (DOA), on behalf of the governor,
stated that this bill will empower plan members to take control
of one portion of their retirement portfolio, namely the timing
of the taxation of one half of their deferred contributions.
The current statute has been in effect since 1972, but only
allows deferred compensation to be made as part of a pre-tax
contribution. This bill is an effort to modernize and update
the options available to members of the plan to comport with
changes that have been made on a national level with deferred
compensation plans.
3:23:59 PM
MR. BOUCHER reported that in January 2011 Congress passed
legislation enabling governments to implement a designated Roth
contribution and HB 135 would allow for the incorporation of
this option into public employees who participate in the state's
deferred compensation plan. The bill would enable members to
control the timing of the taxation taxed at the time the
contribution is made to the deferred compensation plan or at the
time of distribution. The current statute restricts
contributions to deferred compensation program as pre-tax income
only, which effectively means that the income is taxed at the
time of its distribution to the plan member. He suggested that
if HB 135 passed as proposed, it would enable members to choose
to have their contributions taxed at the time of contribution,
which would mean the income would be considered tax free at the
time of qualified distribution of the plan.
3:25:07 PM
MR. BOUCHER stated that HB 135 would enable members to choose
the time when they will be taxed on deferred compensation
contribution. The default option for existing members would be
the current pre-tax plan. Members would need to positively
elect to change the method for their Roth investment to have
their contributions changed to a taxable status. This proposed
bill was in response to requests from members to the Division of
Retirements and Benefits, Department of Administration to offer
this option and the department has provided a list of frequently
asked questions about Roth 457 programs.
3:26:06 PM
MR. BOUCHER provided a section-by-section analysis of the bill.
He stated that Section 1 would repeal the existing statute and
reenact it to provide for a post-tax Roth contribution option in
the public employees' deferred compensation plan and clarifies
that state and federal income tax is not deferred under this
option. This section establishes that if no positive election
is made for a Roth investment, contributions will be deemed to
be on a pre-tax basis. This allows the pre-tax target date
options to continue as the default option for the plan if the
member makes no investment election. This section would
establish dollar limitations according to the Internal Revenue
Service (IRS) code that allows the administrator of the plan to
establish rules and procedures governing the election process by
participating employees.
3:27:12 PM
MR. BOUCHER stated that Section 2 would add a new definition to
Roth contributions to have a meaning under 26 U.S.C. 402A(c) and
Section 3 would establish the effective date of July 1, 2015.
3:27:34 PM
REPRESENTATIVE LEDOUX asked for further clarification on the
definition of a Roth contribution.
3:27:47 PM
KATHY LEA, Chief Pension Officer, Central Office, Retirement &
Benefits, stated that the term "Roth" was one named after [U.S.
Senator William Roth of Delaware], the bill sponsor of the
enabling legislation at the federal level. She described it as
an after tax retirement savings vehicle that would allow a
person to put in an amount that has already been taxed and the
investment earnings, therefore, will be tax free.
REPRESENTATIVE LEDOUX asked whether there was any difference
between a Roth contribution into a retirement account than one
in which the person received the money and had his/her own
investment advisor and put it into a retirement account.
MS. LEA explained that if a person had an investment account,
that the earnings on that account will be taxable. The
difference with a Roth investment would be that the earnings are
not taxable so long as the person has a qualified distribution.
3:29:03 PM
REPRESENTATIVE LEDOUX related her understanding that the
principal under a Roth investment would not be taxable at time
of distribution since the funds were already taxed, but the
earnings would be taxable at the time of distribution since they
had not been taxed.
MS. LEA clarified that any contributions into the Roth
investment are taxed at the time they are made. The investment
earnings on the Roth account for the years it is held are tax
free. Thus, the funds are tax free on distribution as long as
the person has a qualified distribution.
3:30:07 PM
REPRESENTATIVE COLVER related his understanding the only
similarity between a Roth IRA [Individual Retirement Account]
and a Roth 457 was the name "Roth." He further understood the
Roth 457 referred to post-tax investment money that yields tax-
free income on any investment growth for contributions placed in
the deferred compensation plan. This bill would allow the
employee to either select a new option for either pre-tax or
post-tax vehicle.
MR. BOUCHER answered yes.
REPRESENTATIVE COLVER related his understanding that if the Roth
was pre-taxed, when the person took the earnings out, it would
be taxed at that time. He stated that if the contributions have
not already been taxed, the income that accrues will be taxable,
similar to other investment accounts, but if it was a post-tax
investment, the deferred compensation contributions would be tax
free.
MR. BOUCHER answered yes. For example, a person may have a
dependent and wish to pay the tax burden and elect to have a
portion of deferred compensation that he/she planned on paying a
tax for, but also have a portion that the individual did not
want to pay tax on in order to pay the tax on behalf of a
grandchild.
3:32:05 PM
REPRESENTATIVE HUGHES said currently employees have the option
to put money in Roth account and pay taxes later so this bill
would allow them an option to pay taxes early. She asked
whether this bill simply gave an option of when to pay the
taxes.
MR. BOUCHER answered yes.
3:32:37 PM
REPRESENTATIVE LEDOUX related her understanding that if the Roth
contribution was tax deferred, the principal and earnings are
taxed when distributed.
MS. LEA answered yes; if the Roth contributions were pre-taxed.
REPRESENTATIVE LEDOUX said if it was not deferred, the employee
would pay the income tax prior to put it is contributed to the
Roth, but any earnings would not be taxed. She asked whether
that was correct.
MS. LEA answered yes.
3:33:30 PM
REPRESENTATIVE LEDOUX related a scenario in which $1 dollar is
put in the Roth investment and the dollar turns into $10, that
the employee would pay taxes on the entire $10.
MS. LEA answered yes.
REPRESENTATIVE LEDOUX said, however, if the funds were placed
into a "tax not deferred plan," the person would pay income
taxes on the $1 and get $9 tax-free. She thought that sounded
like a great idea for the investor.
MS. LEA answered yes; that the earnings would not be taxed.
3:34:30 PM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on HB 135.
3:34:55 PM
REPRESENTATIVE LEDOUX commented that so long as it doesn't cost
the state, it sounds like a great idea for the state's
employees.
CHAIR OLSON answered that HB 135 has a [zero] fiscal note.
3:35:20 PM
REPRESENTATIVE COLVER echoed the same comments. He said HB 135
provides a good way for employees to defer taxes or income. He
said he was a little confused because of the Roth IRA, which has
income limits, but this is different and relates to the tax
deferment available.
3:36:06 PM
REPRESENTATIVE HUGHES moved to report HB 135 out of committee
with individual recommendations and the accompanying zero fiscal
note. There being no objection, HB 135 was reported from the
House Labor and Commerce Standing Committee.
3:36:41 PM
The committee took an at-ease from 3:36 p.m. to 3:39 p.m.
| Document Name | Date/Time | Subjects |
|---|