A provision in Senate legislation that had investment advisors up in arms because it would reduce the value of inherited IRAs has been removed.
Industry officials said an amendment introduced to S. 1813, the Highway Investment, Job Creation and Economic Growth Act, by Sen. Harry Reid, D-Nev., Senate majority leader, last Thursday, effectively killed the provision without the need for floor action.
See also: Stretch IRAs Under Fire
As drafted, except for certain people, the provision would have forced inherited IRAs to be taxed over five years rather than the current lifetime of the beneficiary, as called for under current law.
According to Congressional analyst Ira Loss, Reid did so in anticipation that he could get the votes to move the omnibus highway bill to the floor.
However, Loss, said Reid was unable to do so. Furthermore, the bill is unlikely to become law this year.
According to William Sweetnam, a member of the Groom Group and a former top Treasury Department official during the Bush administration, the provision was removed because senators did not want to use a pension-related revenue raiser on a non-pension related bill.
A second reason it was removed is that the Senate leadership wanted to study the proposal more. "This is a big change and people wanted to more clearly understand the proposal and maybe modify it," Sweetnam said.
Sweetnam accurately predicted to National Underwriter last week that the provision would be removed and replaced by an interest smoothing provision related to defined benefit plans.
Under the Reid amendment, defined benefit plan liabilities would continue to be determined based on corporate bond segment rates, which are based on the average interest rates over the preceding two years.
However, beginning in 2012 for purposes of the minimum funding rules, any segment rate must be within 15 percent of the average of such segment rates for the 10-year period preceding the current year.
This provision is estimated to raise just over $7 billion in revenue over 10 years. The stretch IRA provision, included in the bill by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, would have raised $4.6 billion over 10 years.
