WASHINGTON – Three lines in the 900-page Pension Protection Act will continue to burden tribes following a failed effort to remove them from the law passed last year.
The lines amend the U.S. Internal Revenue Code to state that all participants in an Indian tribal government pension plan must be employed ”in the performance of essential government functions but not in the performance of commercial activities [whether or not an essential government function].”
In brief, as the law stands now, tribes have to define all employees not engaged in direct government services as commercial business employees. Otherwise, tribal employee earnings invested in tax-exempt retirement accounts run the risk of being found ineligible for tax-exempt treatment, meaning they could be taxed at the time of disbursement – at retirement, in many cases.
State and local governments do not face the essential government function test for their pension plans. The employees of state lottery operations, for example, are eligible for the state’s pension program. In the past, the Internal Revenue Service has treated the earnings of tribal casino employees as similarly eligible for tax-free pension plans; but the treatment has rested on internal IRS policy decisions rather than on law. Under the new law, those earnings would be treated as taxable because the tribal job is newly defined as commercial, not governmental.
The burdens of compliance with the new pension law have been called considerable by tribal tax specialists.
A lobbyist for the correction that faltered in the House of Representatives has advised tribes to put together an inventory of the hardships compliance with the pension provision is causing them, in terms of both human resources and capital. Speaking on condition of anonymity so as not to ignite open hostility between tribes and a key House Democrat, the lobbyist said the bill to nullify the offending three lines, H.R. 2119 in the House, had the backing it needed all lined up in the Senate, as well as key allies in the House including Reps. Earl Pomeroy, D-N.D.; Tom Cole, R-Okla.; and Dale Kildee, D-Mich. But it failed when Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, ruled it out of order in an Iraq supplemental spending bill, despite a provision for labor pensions inserted by Miller into the same bill.
”If it’s out of order, why is Miller’s provision in there?”
Aaron Albright, Miller’s press secretary at the committee, said Miller’s amendment concerned time-sensitive technical corrections to the Pension Protection Act – an out-of-place comma here, a misspelling there – rather than substantive changes to the law.
He added that the protection of employee pensions is a bedrock priority with Miller. Miller needs to be convinced of a better way to protect tribal employee pensions, and he is open to revisiting the issue in other legislation, Albright said.
