TEXPERS asks U.S. legislators to exclude harmful provision from tax reform plan

  • By: admin
  • On: 12/04/2017 12:21:46
  • In: News
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The Texas Association of Public Employee Retirement Systems submitted a letter to senators Orrin Hatch and Ron Wyden, asking them to remove a proposed tax code provision that would subject public pensions to the unrelated business income tax, or UBIT.


The letter mirrors a joint letter released by the National Association of State Retirement Administrators, the National Public Pension Coalition and the National Council on Teacher Retirement in asking legislators to support public pensions by making sure the harmful provision is not included in any tax overhaul. In this way, TEXPERS is joining the unified voice in saying the proposal would diminish investment earnings of police officers, firefighters, teachers and other public workers. 

Read the letter:

The Honorable Orrin G. Hatch
Chairman, Finance Committee
United States Senate Washington, DC 20510
The Honorable Ron Wyden
Ranking Member, Finance Committee
United States Senate Washington, DC 20510
Dear Chairman Hatch and Ranking Member Wyden:
On behalf of the Texas Association of Public Employee Retirement Systems, I ask you to please exclude a harmful provision in House tax reform legislation from Senate legislation and any final compromise with the House.
The provision is Section 5001 of the House Tax Cuts and Jobs Act (H.R. 1), which could subject certain investments of state and local government retirement systems to the unrelated business income tax (UBIT). Application of UBIT to public pension plans erodes the immunity states and the federal government each enjoy from taxation by the other. In addition to the revenue loss from the tax itself, the provision imposes significant, complex compliance costs that could impact portfolio construction and diversification of public funds.
The provision could force the consideration of alternative and more costly investment structures in order to avoid being negatively impacted by the UBIT and may diminish investment earnings, which are critical to pension funding. Furthermore, Section 5001 is currently scheduled to go into effect for tax years beginning January 1, 2018, which will impact many existing investments that cannot be restructured prior to this effective date.
Investment earnings pay for approximately two-thirds of state and local government pension benefits, which are taxed when distributed to participants across virtually every state, city and town in the nation. Subjecting public plans to UBIT undermines critically important investment returns, sets a dangerous precedent for taxation of state entities, and will ultimately increase costs to taxpayers.
TEXPERS' member systems understand that a number of changes to the underlying legislation are under consideration as the tax reform process moves forward. Our association urges that you please continue to exclude this provision, as well as any others that could negatively impact the tax treatment of state and local government retirement systems.
If there is any additional information I can provide, please do not hesitate to contact me.
   Max Patterson
   Executive Director, TEXPERS


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