The Senate on Thursday passed a bill that includes allowing participants in government 457(b) plans to treat elective deferrals as Roth plan contributions beginning in 2011.
The provision was part of a small-business jobs bill passed by a 61-38 vote.
The National Association of Government Defined Contribution Administrators has been lobbying for the 457 provision for several years, arguing that it would put participants on par with participants in 403(b) and 401(k) plans who already have elective deferrals as Roth options. Next year, this option will become available to participants in the $240 billion Federal Thrift Savings Plan, Washington.
Efforts to reach NAGDCA officers for comment were unsuccessful.
Supporters of the 457 provision had to watch from the sidelines as Democrats and Republicans fought over efforts to aid small businesses via tax breaks and a new lending program run by the Treasury Department. The bill stalled in the Senate in August when Democrats couldn’t secure enough votes to overcome a Republican filibuster.
The Senate-passed bill also includes a provision that allows participants in 401(k), 403(b) and governmental 457(b) plans to roll over pretax account balances into a Roth account, according to a summary of the Senate bill. If the rollover is made in 2010, participants can elect to pay the tax in 2011 and 2012, the bill summary said.
If the bill becomes law, “workers won’t have to give up the advantages of an ERISA-protected 401(k) plan to take advantage of special 2010 Roth conversion rules,” said Brian H. Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries, in a news release.
The provision allows participants “to take advantage of Roth conversion rules without forfeiting the protection and advantages of holding savings in an employer-sponsored retirement program,” Mr. Graff said. “Without this proposal, many plan sponsors and participants were considering changes to permit workers to pull their retirement assets out of the plan.”
The House of Representatives, which passed a similar bill in June, will now take up the Senate version.