A bill to waive the penalty for withdrawals from retirement plans for certain Federal employees and contractors affected by a lapse in appropriations, and for other purposes.

II 116TH CONGRESS 1ST SESSION S. 486 To waive the penalty for withdrawals from retirement plans for certain Fed- eral employees and contractors affected by a lapse in appropriations, and for other purposes. IN THE SENATE OF THE UNITED STATES FEBRUARY 14, 2019 Mr. CASSIDY (for himself and Mr. WARNER) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To waive the penalty for withdrawals from retirement plans for certain Federal employees and contractors affected by a lapse in appropriations, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SPECIAL RULES FOR USE OF RETIREMENT 3 FUNDS BY FEDERAL EMPLOYEES AND CON- 4 TRACTORS AFFECTED BY A LAPSE IN APPRO- 5 PRIATIONS. 6 (a) WAIVER OF 10 PERCENT TAX ON EARLY DIS- 7 TRIBUTIONS.—Section 72(t) of the Internal Revenue Code 8 VerDate Sep 11 2014 04:00 Feb 22, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S486.IS S486 kjohnson on DSK79L0C42 with BILLS 2 •S 486 IS of 1986 shall not apply to any qualified furlough distribu- 1 tion. 2 (b) INCOME INCLUSION SPREAD OVER 2-YEAR PE- 3 RIOD.—In the case of any qualified furlough distribution, 4 unless the taxpayer elects not to have this subsection apply 5 for any taxable year, any amount required to be included 6 in gross income for such taxable year shall be so included 7 ratably over the 2-taxable-year period beginning with such 8 taxable year. 9 (c) AMOUNT DISTRIBUTED MAY BE REPAID.— 10 (1) IN GENERAL.—Any individual who receives 11 a qualified furlough distribution may, at any time 12 during the 1-year period beginning on the day after 13 the date on which such distribution was received, 14 make 1 or more contributions in an aggregate 15 amount not to exceed the amount of such distribu- 16 tion to an eligible retirement plan of which such in- 17 dividual is a beneficiary and to which a rollover con- 18 tribution of such distribution could be made under 19 section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 20 457(e)(16) of the Internal Revenue Code of 1986, as 21 the case may be. 22 (2) TREATMENT OF REPAYMENTS OF DISTRIBU- 23 TIONS FROM ELIGIBLE RETIREMENT PLANS OTHER 24 THAN IRAS.—For purposes of the Internal Revenue 25 VerDate Sep 11 2014 04:00 Feb 22, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S486.IS S486 kjohnson on DSK79L0C42 with BILLS 3 •S 486 IS Code of 1986, if a contribution is made pursuant to 1 paragraph (1) with respect to a qualified furlough 2 distribution from an eligible retirement plan other 3 than an individual retirement plan, then the tax- 4 payer shall, to the extent of the amount of the con- 5 tribution, be treated as having received the qualified 6 furlough distribution in an eligible rollover distribu- 7 tion (as defined in section 402(c)(4) of such Code) 8 and as having transferred the amount to the eligible 9 retirement plan in a direct trustee to trustee trans- 10 fer within 60 days of the distribution. 11 (3) TREATMENT OF REPAYMENTS FOR DIS- 12 TRIBUTIONS FROM IRAS.—For purposes of the Inter- 13 nal Revenue Code of 1986, if a contribution is made 14 pursuant to paragraph (1) with respect to a quali- 15 fied furlough distribution from an individual retire- 16 ment plan (as defined by section 7701(a)(37) of 17 such Code), then, to the extent of the amount of the 18 contribution, the qualified furlough distribution shall 19 be treated as a distribution described in section 20 408(d)(3) of such Code and as having been trans- 21 ferred to the eligible retirement plan in a direct 22 trustee to trustee transfer within 60 days of the dis- 23 tribution. 24 (d) SPECIAL RULES.— 25 VerDate Sep 11 2014 04:00 Feb 22, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S486.IS S486 kjohnson on DSK79L0C42 with BILLS 4 •S 486 IS (1) QUALIFIED FURLOUGH DISTRIBUTIONS 1 TREATED AS MEETING PLAN DISTRIBUTION RE- 2 QUIREMENTS.—For purposes of the Internal Rev- 3 enue Code of 1986, a qualified furlough distribution 4 shall be treated as meeting the requirements of sec- 5 tions 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), 6 and 457(d)(1)(A) of such Code, whichever is applica- 7 ble. 8 (2) RELIANCE ON REPRESENTATION.—An eligi- 9 ble retirement plan may rely on an individual’s writ- 10 ten representation that the individual is an applica- 11 ble individual who has not received previous qualified 12 furlough distributions in excess of the dollar limita- 13 tion under subsection (e)(1)(B). 14 (e) DEFINITIONS.—For purposes of this section— 15 (1) QUALIFIED FURLOUGH DISTRIBUTION.— 16 (A) IN GENERAL.—Except as provided in 17 subparagraph (B), the term ‘‘qualified furlough 18 distribution’’ means any distribution from an 19 eligible retirement plan to an applicable indi- 20 vidual if the distribution is made— 21 (i) after January 1, 2019, and 22 (ii) during a covered lapse in appro- 23 priations or the 90 days immediately fol- 24 lowing a covered lapse in appropriations. 25 VerDate Sep 11 2014 04:00 Feb 22, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S486.IS S486 kjohnson on DSK79L0C42 with BILLS 5 •S 486 IS (B) DOLLAR LIMITATION.— 1 (i) IN GENERAL.—The aggregate 2 amount of distributions received by an in- 3 dividual which may be treated as qualified 4 furlough distributions for any taxable year 5 shall not exceed the excess (if any) of— 6 (I) $30,000, over 7 (II) the aggregate amounts treat- 8 ed as qualified furlough distributions 9 with respect to such individual for all 10 prior taxable years. 11 (ii) AGGREGATION.—Distributions re- 12 ceived from all eligible retirement plans 13 shall be aggregated for purposes of the dol- 14 lar limitation under clause (i). 15 (2) ELIGIBLE RETIREMENT PLAN.—The term 16 ‘‘eligible retirement plan’’ has the meaning given 17 such term by section 402(c)(8)(B) of the Internal 18 Revenue Code of 1986. 19 (3) COVERED LAPSE IN APPROPRIATIONS.—The 20 term ‘‘covered lapse in appropriations’’ means any 21 lapse in appropriations that begins on or after De- 22 cember 22, 2018. 23 (4) APPLICABLE INDIVIDUAL.—The term ‘‘ap- 24 plicable individual’’ means any individual— 25 VerDate Sep 11 2014 04:00 Feb 22, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S486.IS S486 kjohnson on DSK79L0C42 with BILLS 6 •S 486 IS (A) who is a Federal employee furloughed 1 due to a covered lapse in appropriations, 2 (B) who is placed on unpaid leave as a 3 Federal contractor, or as an employee of a Fed- 4 eral contractor, due to a covered lapse in appro- 5 priations, and whose sole source of earned in- 6 come (as defined in section 32(c)(2) of the In- 7 ternal Revenue Code of 1986) is (but for such 8 lapse) remuneration as such a contractor or em- 9 ployee thereof, 10 (C) who is an employee of a State or other 11 Federal grantee— 12 (i) whose compensation is advanced or 13 reimbursed in whole or in part by the Fed- 14 eral Government, and 15 (ii) who is furloughed due to a covered 16 lapse in appropriations, or 17 (D) who is an employee of the District of 18 Columbia Courts, the Public Defender Service 19 for the District of Columbia, or the District of 20 Columbia government and is furloughed due to 21 a covered lapse in appropriations. 22 Such term shall include any excepted employee and 23 any employee performing emergency work, as such 24 VerDate Sep 11 2014 04:00 Feb 22, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S486.IS S486 kjohnson on DSK79L0C42 with BILLS 7 •S 486 IS terms are defined by the Office of Personnel Man- 1 agement, during a covered lapse in appropriations. 2 Æ VerDate Sep 11 2014 04:00 Feb 22, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6301 E:\BILLS\S486.IS S486 kjohnson on DSK79L0C42 with BILLS