[Congressional Record Volume 143, Number 13 (Wednesday, February 5, 1997)]
[Extensions of Remarks]
[Pages E173-E174]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  INTRODUCTION OF LEGISLATION TO ALLOW PENALTY-FREE WITHDRAWALS FROM 
        CERTAIN RETIREMENT PLANS DURING PERIODS OF UNEMPLOYMENT

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                           HON. JIM McDERMOTT

                             of washington

                    in the house of representatives

                      Wednesday, February 5, 1997

  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 Charles Rangel, Robert Matsui, John Lewis, 
Ronald Dellums, Esteban Torres, Eleanor Holmes Norton, Robert Rush, 
Maurice Hinchey, Vic Fazio, Zoe Lofgren, Eva Clayton, and Charles 
Canady have joined me as original cosponsors of 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.
  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pay an additional 10 percent tax on the amount withdrawn.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

[[Page E174]]

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, thus, 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.

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