[Congressional Record Volume 142, Number 103 (Friday, July 12, 1996)]
[Extensions of Remarks]
[Page E1272]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  LEGISLATION TO ALLOW PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS 
                          DURING UNEMPLOYMENT

                                 ______
                                 

                           HON. JIM McDERMOTT

                             of washington

                    in the house of representatives

                         Friday, July 12, 1996

  Mr. McDERMOTT. Mr. Speaker, today I am introducing legislation that 
would allow people to receive penalty-free withdrawals of funds from 
certain retirement plans during long periods of unemployment. I am 
pleased that Representatives Sam Gibbons, Charles Rangel, Pete Stark, 
Barbara Kennelly, Robert Matsui, Bill Coyne, John Lewis, and Richard 
Neal have joined me in cosponsoring this legislation.
  This legislation would allow penalty-free withdrawals from individual 
retirement accounts [IRA's] and qualified retirement plans--401(k) and 
403(b)--if the taxpayer has received unemployment compensation for 12 
weeks under State or Federal law. Under the legislation, the 
distribution of funds would have to be made within 1 year of the date 
of unemployment. In addition, a self-employed individual would be 
treated as meeting the requirements of unemployment compensation if the 
individual would have received such compensation if the individual 
would have received such compensation if he or she had not been self-
employed.
  Under current law, when a taxpayer withdraws money from an IRA or a 
qualified retirement plan before age 59\1/2\, he or she is forced to 
pay an individual 10 percent tax on the amount withdrawn. This 
additional tax is intended to recapture at least a portion of the tax 
deferral benefits of these plans. This tax is in addition to regular 
income taxes the taxpayer must pay as the funds are included in the 
taxpayer's income. The early-withdrawal tax also serves as a deterrent 
against using the money in those accounts for nonretirement purposes.
  The vetoed Balanced Budget Act of 1995 includes a provision which is 
the same as this legislation with respect to withdrawals from IRA's. 
This provision recognizes that when an individual or family is faced 
with long periods of unemployment, they may have no other choice but to 
draw upon these funds to meet their everyday living expenses. During 
this financially stressful time, an additional 10 percent tax for early 
withdrawal is unfair and only serves to make the family's financial 
situation worse. This legislation would accomplish the goals of that 
provision by allowing penalty-free withdrawals during long periods of 
unemployment from IRA's as well as qualified retirement plan 401(k) and 
403(b) accounts.
  Many small businesses offer participation in 401(k) plans, this 
amendment would help unemployed people who at the time of separation 
from employment chose to leave their 401(k) funds with their former 
employer. Then, because of unanticipated long periods of unemployment, 
need access to those funds. Accordingly, many small businesses would 
benefit from this amendment. In addition, employees who are laid-off 
from their former employment may need access to those funds in order to 
start up their own small business. State and local government employees 
who are displaced through downsizing, also may need access to the funds 
in their 403(b) plans for similar purposes.
  The benefit this legislation would offer the long-term unemployed is 
the right thing to do in this period of economic uncertainty. You can 
plan for many things in your life financially, but the impact of long, 
unanticipated periods of unemployment can create financial havoc on any 
individual or family, including those that thought they had adequate 
savings to get them through such a situation. Long periods of 
unemployment are similar to major illnesses that can result in 
catastrophic medical expenses. Under current law, taxpayers are allowed 
penalty-free early withdrawals from qualified retirement plans to meet 
catastrophic medical expenses, therefore, it makes sense to extend this 
benefit in cases of long periods of unemployment.
  Passage of this legislation would allow unemployed taxpayers a chance 
to get back on their feet without having to pay an unnecessary 
financial penalty when they can least afford it.

                          ____________________