The Tax Reform Act of 1976 added a new section 220 to the Code which allows a contribution by a married person to an Individual Retirement Account on behalf of his or her non-working spouse. This concept should be extended to all non-working spouses, not only those of individuals who participate in IRAs. 15. Increasing the Number of Taxpayers Eligible to An individual is eligible to establish an IRA if he is not an active participant in a tax qualified retirement program or a government retirement program. This is an "all or nothing" requirement and does not take into account levels of participation in other plans. Participation in a plan where even a small retirement benefit is accrued will disqualify a person from establishing an IRA even though he may be able to accrue a larger benefit under an IRA than his employer provides. The obvious inequity of this approach was corrected to some degree by the adoption of section 219 (c)(4)(A) and (B) permitting IRA participation by members of armed forces reserves and by volunteer firemen; their coverage under governmental plans would have previously disqualified them from establishing IRAs. Improvement is needed in areas where employees are covered by other retirement programs that are not as large as would be 30-779 - 78-65 possible under an IRA. For example, a defined contribution plan could establish a percentage contribution of less than 15 percent or $1,500 for an employee's retirement benefit. A defined benefit plan could fund a retirement benefit that would provide a smaller benefit than would be obtained by IRA sized contributions. Additionally, employees may not derive the benefit of contributions if they terminate employment before they are vested, either partially or fully. In each such case an employee may believe that he would be better off with an IRA rather than with an employer sponsored plan. (This issue is further complicated by the issues raised in item 13). In order that employees' desires for retirement security not be frustrated, the IRA provisions should take into account employees who are covered by other plans but not to the extent provided by the IRA. D. 403(b) Plans Prior to the enactment of ERISA, Section 403(b) of the Code permitted public school systems and charitable organizations to fund deferred compensation arrangements for their employees with insurance annuities. ERISA amended the Code by adding Section 403(b)(7), which provides that these plans can be funded with mutual fund shares as well as with annuities. The legislative history indicates that Congress intended for mutual fund 403(b) plans to be treated in the same manner as 403(b) annuity plans. However, the Treasury Department has issued proposed regulations which would discriminate against mutual fund plans by prohibiting withdrawals prior to age 65, except for death, disability or severance from employment after age 55. The Treasury has never imposed these restrictions on 403(b) annuity plans. We ask this Subcommittee to review this matter to insure that mutual fund shares and annuity contracts are treated alike as funding media under Section 403(b). If the Institute can be of further help to this Subcommittee, or if additional information is needed, please contact William M. Tartikoff, Assistant Counsel. Thank you for inviting me to testify at the Subcommittee on Labor Standards' oversight hearings on the Employee Retirement Income Security Act of 1974 (ERISA) on Thursday, June 1. Unfortunately, because of my heavy legislative schedule I understand that California's Commissioner of Corporations, Please let me know if you have any questions or if you need more information. Very/ tryly yours, Joh JOHN T. KNOX JTK/mg Enclosures STATEMENT BY ASSEMBLYMAN JOHN T. KNOX Health care is one of the most often purchased commodities in California and yet, until 1975, we regulated the purchase of health care for the consuming public less than we regulated the sale of securities which are purchased by a much more sophisticated consumer. The Knox-Keene Health Care Service Plan Act of 1975 was the product of nearly three years of concerted work and study into the problems and abuses of the prepaid health plan as a vehicle of health care delivery, by myself and Assemblyman Barry Keene, officials of the California Department of Corporations and the California Office of the Attorney General. This measure repealed the Knox-Mills Health Plan Act of 1965, which placed responsibility for registration of plans with the Attorney General, and created a comprehensive system of licensing and regulation under the jurisdiction of the Commissioner of Corporations. Unfortunately, I am unable to supply you with transcripts of the many committee hearings and meetings that comprise the legislative history of the Knox-Keene Act; in California, we only provide transcription services for interim hearings. But I will try to explain why this bill was needed and how it evolved. The Knox-Keene Act was more than a simple transfer of jurisdiction from the Office of the Attorney General to the Commissioner of Corporations. It was an expansion of regulatory requirements necessary to meet the changing situation of health care delivery systems in California. The previous Knox-Mills law was enacted at a time when |