The last few months have seen a significant amount of legislative activity around pension and retirement policy on Capitol Hill. The House and the Senate have been positioning themselves for a potential year end negotiation on a retirement policy package in the lame duck session of Congress beginning in November. We have also seen new proposals introduced into legislation from individual Members of Congress that could be considered in the coming years.
Family Savings Act
On September 27, 2018, the House of Representatives passed 240-177 the Family Savings Act of 2018 (H.R. 6757). This bill was one of the three components of the Republicans’ Tax Reform 2.0 package. The Family Savings Act includes a significant number of provisions found in the bipartisan Retirement Enhancement and Savings Act (RESA) of 2018 (H.R. 5282/S. 2526).
These provisions include (but are not limited to):
- allows two or more unrelated employers to join a pooled employer plan
- gives an employer additional time until the due date of the tax return (with extensions) to adopt a qualified retirement plan
- eliminates the safe harbor 401(k) plan nonelective notice requirement
- allows employers to elect a safe harbor 401(k) plan during the year provided employers give eligible employees a 3% nonelective contribution
- allows employers to elect a safe harbor 401(k) plan at or after the end of the year provided employers give eligible employees a 4% nonelective contribution
- creates a fiduciary safe harbor for employers to purchase an annuity contract as part of a defined contribution plan
- allows individuals to roll an annuity contract out of a plan (to an IRA or another qualified plan) if an employer chooses to terminate the annuity contract
- prohibits plan loans to be issued through credit cards
- deems 403(b) custodial accounts to be IRAs if an employer terminates a 403(b) plan
- clarifies the definition of a church-controlled organization allowed to use a 403(b) retirement income account plan
- grants nondiscrimination testing relief to certain defined benefit plans closed to new entrants
It is a safe bet that any provision included in both RESA and the Family Savings Act will be included in a year-end retirement policy package if one materializes.
The Family Savings Act also included some new savings policy proposals.
Universal Savings Accounts (USAs) – The bill created a new savings vehicle called a Universal Savings Account (USA). USAs are essentially a tax-free savings account that can be opened by any individual or on behalf of a spouse with no income limits on participation. Individuals can contribute up to $2,500 annually into these accounts and they enjoy the same tax treatment as designated Roth contributions into qualified retirement plans or IRAs. Unlike qualified retirement plans or IRAs however, there are no restrictions on distributions from USAs. The Joint Committee on Taxation (JCT) estimates this provision to cost the U.S. Treasury $8.6 billion over 10 years.
New Section 72(t) waiver for birth or adoption expenses – The bill would allow individuals to take a distribution from a qualified plan or IRA for up to $7,500 in qualified birth or adoption expenses that would not be subject to the Section 72(t) additional income tax on early distributions. Any portion of this distribution may be recontributed to a qualified plan or IRA at any time after the date on which the distribution was received. Such recontributions will be treated as a rollover contribution for tax purposes. JCT estimates this provision to cost the Treasury $1.9 billion over 10 years.
Small account balance RMD exemption – The bill would exempt an individual from the required minimum distribution rules if the aggregate value of an individual’s entire interest in any qualified retirement plan or IRA does not exceed $50,000 (indexed to inflation). The provision also requires plan administrators or IRA trustee to report to the Treasury (no later than January 31 of each year) the name, address, and taxpayer identification number, and account balance of each plan participant or IRA owner who turned 69 as of the end of the preceding calendar year. JCT estimates this provision to cost the Treasury $6.2 billion over 10 years.
If you are interesting in reading in greater detail about these and any of the other proposals in the Family Savings Act please click on the hyperlink to the full Joint Committee on Taxation description here.
Other Retirement Savings Legislation
Various other pieces of retirement policy legislation have been introduced in the House and Senate as the 115th Congress slowly grinds to a close by the end of the year.
Save Community Newspaper Act of 2018 (H.R. 6377) – In July 2018, the House Ways and Means Committee approved by voice vote the Save Community Newspaper Act. The bill permits certain single-employer community newspaper defined benefit plans to use an alternative minimum funding standard. The alternative funding standard would allow for an 8% interest credit rate with a 30 year funding shortfall repayment period (extended out from 7 years). Employers eligible for this alternative funding standard must be a private closely held family company operating in a single state with a “frozen” defined benefit plan (no new entrants or benefit accruals). The Joint Committee on Taxation identified at least 15 plans that are eligible for the funding relief including the Minneapolis Star-Tribune and the Seattle Times pension plans.
Small Business Employees Retirement Enhancement Act (S. 3219) – In July 2018, Senator Tom Cotton (R-AR) with Sens. Todd Young (R-IN), Heidi Heitkamp (D-ND), and Cory Booker (D-NJ), introduced legislation that would create a ‘fiduciary free’ pooled employer plan model. The bill would absolve any employer with no more than 100 employees receiving at least $5,000 in compensation (i.e. any employer eligible to use a SIMPLE IRA) of their fiduciary duty prudently to select and monitor the pooled employer plan service provider or investments. Eligible employers would merely have to select a “registered” pooled employer plan provider from a Department of Labor website and ensure the provider receives no more than “reasonable compensation”.
Portable Retirement and Investment Account Act of 2018 (H.R. 6990) – In September 2018, Congressman Jim Himes (D-CT, 4th) introduced legislation that would create a parallel universe of government run 401(k)-like savings vehicles called PRIAs. The bills establishes a new trust fund within Treasury and creates an individual account within the trust for each individual with a Social Security number. The government would then contribute $500 to the account for each child whose parent qualifies for the Earned Income Tax Credit (EITC). The accounts would be overseen by a director appointed by the President and a board of trustees of high ranking federal government officials. Employers are required to permit employees to defer wages into the accounts and the accounts can accept employer contributions. Individuals can defer up to the Section 402(g) qualified plan limits ($18,500 in 2018). Rollovers from qualified plans and IRAs into PRIAs are permitted.
Government Affairs Contact: Andrew J. Remo, Director of Legislative Affairs, (703) 516-9300 Ext. 175, [email protected]