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Bill Could Create Annuity Income Tax Break

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NU Online News Service, April 11, 2003, 5:23 p.m. EDT — Washington

Retirees who receive part of their retirement income in the form of an annuity would receive tax-favored treatment under a new bill introduced today by Reps. Rob Portman, R-Ohio, and Ben Cardin, D-Md.

In the latest Portman-Cardin pension reform bill, retirees with incomes up to $90,000 could exclude up to $2,000 in annual retirement plan annuity income from taxation.

In other words, 10% of up to $20,000 annually in annuity income would be tax-free.

The American Council of Life Insurers, Washington, is praising the provision.

“We need to make sure that retirees, who will be living 20, 30 years or longer in retirement do not exhaust their savings,” says ACLI President Frank Keating.

“We also need to continue to encourage workers to take personal responsibility for their financial futures so they will not have to rely so greatly on governmental assistance in their retirement,” he adds.

Another key section of the Portman-Cardin bill would establish a new interest rate benchmark for pension calculations.

Plan sponsors have been using the 30-year Treasury bond rate, but that rate has fallen dramatically as a result of the discontinuation of the 30-year bond. The drop has sparked fears that employers might have to make billions of dollars in additional, unexpected plan contributions.

The Portman-Cardin bill would ease those fears by adopting a benchmark based on long-term corporate bond rates, the sponsors say.

Other sections of the bill would:

  • Accelerate the increased savings limits contained in the 2001 tax relief act by putting them into effect beginning in 2004.
  • Immediately accelerate the limit on contributions to individual retirement accounts to $5,000.
  • Simplify administration of defined benefit plans. One provision would streamline the plan valuation data-collection process.
  • Allow employers with defined contribution plans to fund a portion of retiree medical expenses on a pre-tax basis.


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