Early interpretation of the tax reform proposal issued by the U.S. House of Representatives today from Empower Retirement points to some important changes that will impact defined contribution and defined benefit retirement plans.

For example, currently an individual may “recharacterize” during a given tax year a traditional individual retirement account (IRA) contribution as a Roth IRA contribution (and vice versa), and this person may also recharacterize (reverse) a conversion of a traditional IRA to a Roth IRA. Under the new tax proposal, such tax-year recharacterization of IRA contributions and conversions generally would no longer be permitted, beginning after 2017.

Turning to another change, Empower explains that currently, in‐service distributions for governmental defined benefit (DB) and defined contribution (DC) plans are limited to participants age 62 and older—or age 70.5 and older for 457 plans. The new proposal would allow all participants in governmental DB and DC plans to take in‐service distributions at age 59.5, including 457 plans.

Empower further explains, under the proposal, the 6‐month suspension on 401(k) deferrals following a hardship distribution rule is deleted and a participant can continue making contributions without interruption. Tied to this, employers will be permitted to choose whether hardships can include earnings and employer contributions.

Whereas today some plans interpret hardship distribution rules to require a participant to take a loan before they qualify for a hardship distribution, under the new legislation the Internal Revenue Code Section 401(k) will explicitly state that a distribution will not fail to be a hardship distribution solely because the participant did not take any loan.

As Empower notes, today plan sponsors may require an employee to repay completely a loan upon termination of employment or plan termination. If the employee is unable to repay the loan, then the employer will treat it as a distribution. The employee can avoid the immediate income tax consequences if he or she is able to come up with the loan’s outstanding balance within 60 days and rolls over this amount to an IRA or eligible retirement plan. Under the new legislation, this 60 day period would be extended to the employee’s due date for filing their tax return (including extensions) for that year.

Finally, Empower points to one more change it views as important for the retirement planning industry: “For employers sponsoring both a DB and DC plan, the nondiscrimination rules allow limited cross‐testing between the two plans. The result can be that a closed DB plan ends up violating the nondiscrimination rules even though workers are continuing to accrue valuable benefits.” Reforms called for by the GOP bill would allow expanded cross-testing between a DB and DC plan for employers who sponsor both types of plans.

Alongside the Empower commentary, many other retirement industry providers and lobbying organizations have registered their early take on the text of the tax reform proposal. The Insured Retirement Institute (IRI) released a statement from IRI President and CEO Cathy Weatherford, voicing support for Speaker Paul Ryan (Republican, Wisconsin), House Ways and Means Chairman Kevin Brady (Republican-Texas) and “all the members of the House Republican Conference recognized the crucial role tax-deferral plays for Americans saving for their retirement.”

Weatherford sees the legislation “maintaining the tax-deferred treatment of retirement savings and preserving Americans’ right to choose how their retirement savings will be taxed.”

“Additionally, we were pleased to see the legislation will lower the overall corporate tax rates,” Weatherford says. “The bill also proposes several changes to sections of the tax code which impact the taxation of life insurance companies and IRI is currently analyzing these changes. We remain committed to working with members of the House and Senate to ensure that any tax reform measure signed into law is beneficial to American retirement savers.”