Potential NEW Pension Tax - Help Needed - Please Contact Your Representatives

Dear Brothers and Sisters –

 

We Need Your Help!

The new tax reform proposal that has already passed US House of Representatives contains a provision (Section 5001) that will subject certain public pension investments to unrelated business income tax (UBIT). 

This is a NEW tax on state and local government retirement systems, not a clarification of existing law!

This proposal overturns a 40-year-old position by the IRS to not apply UBIT to public pension trusts! 

This change sets a dangerous precedent regarding federal taxation of state agencies, eroding the Constitutional immunity states and the federal government each enjoy from taxation by the other. 

Since 2008, every state has made changes its pension plans.

NO Public pension plans has asked for any assistance from Congress, but DO expect Congress to avoid imposing adverse tax changes!

If Congress wants to tax public pension funds and subject them to the UBIT, they should apply UBIT to new investments only, and grandfather all other investments. 

Unlike private investments under the proposal, that use a corporate blocker allowing access to a nearly 20 percent lower tax rate, public investments will be taxed at a much higher rate.

In summary:

·  Application of UBIT to public pension plans is a NEW tax!

·  It overturns IRS' 40-year-old position to not apply UBIT to state and local government retirement systems!

·  Existing public plan investments will be treated far worse than private plans that choose to use corporate blockers.
 

You are urged reach out to your delegation offices (particularly those on the Senate Finance Committee, House Ways and Means Committee, House Leadership or Senate Leadership). Please see the information below to assist with making contact.

Yours in Solidarity,

John R. Niemiec
President

__________________________________________________________________________

The following information is provided to help you make contact with Committee Members and your local members of Congress. Most members of Congress no longer provide email addresses, but rather a contact form. Sample form letters are attached based on the letters sent to Congress by organizations that are helping to protect our pensions. Feel free to cut and paste as necessary to fit your needs. There is one version for the Senate and one for the House of Representatives. If you decide to send a letter, make sure you change the heading to the appropriate member of Congress.

Thanks,
Herb

Senate Contact Information

Below is the contact information for the primary Members for the Senate Finance Committee. You can also find your member of the Senate HERE. Consider asking your family and friends to contact their Senators. Virginia Senator Mark Warner is a member of the committee.

 

Senator Orin Hatch
Chairman, Finance Committee
Click Here to Contact Senator Orin Hatch
Twitter: @OrinHatch
https://www.facebook.com/senatororrinhatch
(202) 224-5251

Senator Ron Wyden
Majority Member, Finance Committee
Click Here to Contact Senator Ron Wyden
Twitter: @RonWyden
https://www.facebook.com/wyden
(202) 224-5244

 

Senator Mark Warner
Member, Finance Committee - Virginia Senator
Click Here to Contact Senator Mark Warner
Twitter: @MarkWarner
https://www.facebook.com/MarkRWarner/
(202) 224-2023

 

House of Representatives

Below is the contact information for the primary Committee Members for the Ways & Means Committee and Sub-Committee on Tax Policy. You can also find your member of the House of Representatives HERE. Consider asking your family and friends to contact their Representative. Unfortunately it appears that Members of the House of Representatives only accept "e-mail" from their actual constituents by screening submissions by using the zip code +4 to verify that they are in the proper location. I have added the address to their District Office to get through the screening process. If you do not want to do that, I would recommend calling their office to voice your concern or contact them through social media. 

Congressman Kevin Brady

Congressman Peter Roskam
Chair, Subcommittee on Tax Policy
Click Here to Contact Congressman Peter Roskam
Twitter: @PeterRoskam
https://www.facebook.com/PeterRoskam
200 South Hough St
Barrington, IL 60010-4322
202-225-4561
 

Congressman Lloyd Doggett
Ranking Member, Subcommittee on Tax Policy
Click Here to Contact Congressman Lloyd Doggett
Twitter: @RepLloydDoggett
https://www.facebook.com/lloyddoggett
300 E 8th St
Austin, TX 78701-3224
202-225-4865

 

__________________________________________________________________________

 

The Honorable Orrin G. Hatch
Chairman, Finance Committee
United States Senate
Washington, DC 20510

Dear Mr. Chairman,

I am writing to express serious concerns that I have regarding a provision in the House tax reform legislation. I urge you to please continue to exclude this provision from Senate legislation, as well as any final compromise with the House.

The provision of concern is Section 5001 of the House Tax Cuts and Jobs Act (H.R. 1), which could subject certain investments of state and local government retirement systems to the unrelated business income tax (UBIT). State agencies are Constitutionally exempt from taxation and application of UBIT to public pension plans erodes the immunity states and the federal government each enjoy from taxation by the other.

In addition to the revenue loss from the tax itself, the provision imposes significant, complex compliance costs that could impact portfolio construction and diversification of public funds. It could force the consideration of alternative and more costly investment structures in order to avoid being negatively impacted by the UBIT and may diminish investment earnings, which are critical to pension funding. Furthermore, Section 5001 is currently scheduled to go into effect for tax years beginning January 1, 2018, which will impact many existing investments that cannot be restructured prior to this effective date.

Investment earnings pay for approximately two-thirds of state and local government pension benefits, which are taxed when distributed to participants across virtually every state, city and town in the nation. Subjecting public plans to UBIT undermines critically important investment returns, sets a dangerous precedent for taxation of state entities, and will ultimately increase costs to taxpayers.

I understand that a number of changes to the underlying legislation are under consideration as the tax reform process moves forward. I ask that you please continue to exclude this provision, as well as any others that could negatively impact the tax treatment of state and local government retirement systems. I greatly appreciate your time and consideration.

Sincerely,

Name

Address

 

__________________________________________________________________________

 
 

The Honorable Kevin Brady Chairman
Ways and Means Committee
U.S. House of Representatives
Washington, DC 20515

 

Dear Mr. Chairman,

I am writing to express serious concerns I have regarding Section 5001 of the Tax Cuts and Jobs Act (H.R. 1), which could subject certain investments of state and local governmental pension plans to the unrelated business income tax (UBIT). State agencies are Constitutionally exempt from taxation and application of Section 5001 to public pension plans erodes the immunity states and the federal government each enjoy from taxation by the other.

In addition to the revenue loss from the tax itself, the provision imposes significant, complex compliance costs that could impact portfolio construction and diversification of public funds. It could force the consideration of alternative and more costly investment structures in order to avoid being negatively impacted by the UBIT and may diminish investment earnings which are critical to pension funding. Furthermore, Section 5001 is currently scheduled to go into effect for tax years beginning January 1, 2018, which will impact many existing investments that cannot be restructured prior to this effective date.

Investment earnings pay for approximately two-thirds of state and local government pension benefits, which are taxed when distributed to participants across virtually every state, city and town in the nation. Subjecting public plans to the UBIT will result in a drag on these critically important investment returns, sets a dangerous precedent for taxation of state entities, and will ultimately increase costs to taxpayers. I urge you to remove the application of Section 5001 to state and local retirement systems. At a minimum, the effective date of the UBIT provision should be modified to apply to only those agreements and investments entered into after the date of enactment of the legislation.

I appreciate your time and consideration.

Sincerely,

Name

Address

 

Some key talking points that have been developed by NASRA, NCTR & NCPERS:

·         *This is a NEW tax on state and local government retirement systems, not a clarification of existing law, and overturns a 40-year-old position by the IRS to not apply UBIT to public pension trusts. 

·        *It sets a dangerous precedent regarding federal taxation of state agencies, eroding the Constitutional immunity states and the federal government each enjoy from taxation by the other.

·        *Since the Great Recession, every state has made changes to one or more of its pension plans to strengthen their financial condition. Public pension plans have NOT sought any type of assistance from Congress, but expect Congress to avoid imposing adverse tax changes, particularly without any formal consideration of the impact on the funds and the affected investments (including economic development, real estate and infrastructure).

·       *If Congress wants public pension funds to exit the types of investments that would be subject to UBIT, they should, at a minimum, apply UBIT to new investments only, not ones that were entered into in good faith based on the long-standing understanding that UBIT did not expressly apply. 

·      *Existing public plan investments will be treated far worse than private investments that use a corporate blocker, which under tax reform would give them a nearly 20 percent lower tax rate than trusts that do not have such blockers in place.

In summary: Application of UBIT to public pension plans is a NEW tax, it sets a dangerous precedent with regard to federal taxation of state agencies, it overturns IRS' 40 year-old position to not apply UBIT to state and local government retirement systems, and existing public plan investments will be treated far worse than private plans that choose to use blockers.