As we have discussed, the pending pension bill now in conference appears to be the best vehicle for action this year on 529 permanency. Timing on the pension bill is uncertain. Leadership and the principal conferees hope to wrap up the legislation in the next few weeks, but there are a number of unresolved issues — including the retirement savings tax provisions contained primarily in the House bill. There also are some key decisions that will be made regarding potentially adding the estate tax legislation and the package of non-pension related expiring tax provisions.

Outreach from CSF Members re Inclusion of 529 Permanence in Pension Bill

As noted in detail below, CSF continues to lobby actively for inclusion of 529 permanence in the final pension bill. (The Government Affairs Committee has also been working with the Media Committee on development of an op-ed supporting prompt action on 529 permanence.) It would be extremely helpful if CSF members could reach out to Members of Congress and Senators with whom you have relationships (whether these individuals are members of the pension conference or not) to urge inclusion of 529 permanence in the final pension bill. The attached letter from Senators makes the arguments for why these issues should be addressed together and so may be helpful to you in doing this outreach. We are also attaching a spreadsheet listing the staff contacts for each of the pension conferees. For assistance in doing this outreach, please contact Jamey or Barbara at Davis & Harman.

Ways and Means Committee Support and Additional Cosponsors

Pension conferees have indicated that the 529 permanency issue will be raised for consideration by the conferees, and every effort is being made to encourage its inclusion. On the House side, we have been working with CSPN to encourage Ways and Means Committee members to include 529 permanency on the pension bill priority lists requested by Chairman Thomas from members of the Committee. We also have assisted CSPN on a 529 support letter to Chairman Thomas from members who may be vulnerable in the November election and who believe support of 529 permanency will be of political assistance in their races. In both the House and Senate, there is an ongoing push to add additional cosponsors to the 529 bills, H.R. 2386 and S. 1112. CSF members have been very active and successful in this effort. The Senate bill now has 72 cosponsors (including Chairman Grassley) and the House bill has 127 cosponsors (including Representative Hart).

Revenue Estimate

Chairman Grassley’s Finance Committee counsel, John O’Neill, recently shared with us the official Joint Committee on Taxation estimate on the permanency bill. In 2005, John provided an unofficial Joint Committee on Taxation estimate showing a $2.3 billion revenue loss over ten years. The new official estimate shows a loss of $273 million over five years and $4.071 billion over ten years. A portion of the increase likely can be attributed to the change in the budget baseline, which is adjusted each year. Also, there also are more years in the revenue window post-expiration (which increases the bill’s cost), and there has been substantial growth in assets that would be distributed tax-free. In light of this, both staff and we are pleased that the number is not higher.

Baucus Education Bill

On a parallel track with the pension bill deliberations, Senator Max Baucus is drafting a comprehensive education tax bill that includes 529 permanency, but also will contain some modifications to Section 529. Last month, we circulated for comment the Baucus summary on 529 plans. Below is the language:

Section 529 Qualified Tuition Programs: The Federal tax-exempt treatment of 529 plans would be made permanent, but rules governing section 529 Qualified Tuition Programs would be reformed to better reach low-income families. Limits on fees and requiring brokers to inform clients about benefits that may exist from utilizing their own state’s 529 plan would allow more low-income families to utilize 529 plans.

The proposals to limit fees and require disclosures about state tax benefits raise significant concerns and would fly in the face of the recent steps taken by the MSRB after much consultation with CSF, CSPN and others. We are working jointly with CSPN to convey our concerns about these proposals, and Davis & Harman attended a meeting with CSPN to discuss the proposals with the Senator’s Finance Committee staff.

Modifications to Section 529

In the course of the meeting with the Baucus staff, Russ Sullivan (Finance Committee Democratic Staff Director) discussed the potential opportunity to add the 529 permanency bill to the pending pension reform bill. Russ indicated the issue certainly would be raised and considered during the conference. Russ said cost could be a factor, but indicated there is support for 529 permanency among the Senate conferees.

Russ indicated that he may recommend some modifications to Section 529 to Senator Baucus that could be coupled with permanency. Russ and his colleague, Rebecca Baxter, inquired about several potential modifications such as setting an overall federal contribution cap, and limiting transfers to family members. Rebecca requested information on current state contribution caps, which CSPN later provided. We currently are following up with CSF members on the issues raised by Russ and Rebecca, and have touched base with Chairman Grassley’s staff, as well. We will be back in touch if it looks like any such modifications would actually be included in the pension bill along with permanency.