Proposed Legislation Signals Major Retirement Plan Changes

The early months of 2019 have been busy for Washington lawmakers, with the introduction of several pieces of legislation that would create major waves in the realm of employer-sponsored retirement plans. Let’s review some key provisions of these bills and what their passage by Congress would mean to retirement plan sponsors and business owners.

RESA and the SECURE Act seek to enhance retirement plan access
Two nearly identical bills that would bring notable reform to retirement savings plans were introduced in the U.S. Senate and House of Representatives.

• The Retirement Enhancement Act (RESA) of 2019 is a scrubbed-up version of a bill passed unanimously by the Senate Finance Committee in 2016. The proposed act was reintroduced by Senate Finance Chairman Chuck Grassley of Iowa and ranking member Senator Ron Wyden of Oregon in early April 2019 and contains many provisions of the original bill.
• The Setting Every Community Up for Retirement Enhancement (SECURE) Act was proposed by a bipartisan group of House Ways and Means Committee members led by Chairman Richard Neal of Massachusetts and ranking member Representative Kevin Brady of Texas. It combines many provisions of RESA and the Family Savings Act, which passed the House of Representatives in late 2018, with a few new ideas. The SECURE Act received a favorable vote from the House Ways and Means Committee in early April 2019.

The overriding themes of both bills are the expansion of retirement plan coverage and the easing of access to retirement plans for working Americans. Important provisions that will affect employer-sponsored retirement plans are listed below. The list is not exhaustive, but its critical items signal the clear intent that Congress intends to push for major retirement plan reforms soon.

Together, the acts:

• Allow "open" multiple employer plans (MEPs), permitting unrelated small businesses to band together in open retirement plan arrangements
• Increase the automatic safe harbor deferral maximum from 10 percent to 15 percent (Please note: RESA removes the maximum entirely.)
• Simplify safe harbor rules by eliminating various notice requirements • Raise the age for required minimum distributions (RMDs) from 70½ to 72
• Remove the prohibition of retirement contributions after the account owner reaches age 70½, making retirement account contributions allowable regardless of age
• Provide more attractive tax credits to businesses that offer an automatic enrollment provision to their employees in 401(k) and SIMPLE IRA plans
• Allow long-term part-time employees—who may otherwise be excluded—to participate in the retirement plan
• Loosen the rules for 529 account usage to include elementary school, secondary school, and homeschooling expenses
• Require lifetime income projections to appear on the benefit statements of plan participants

The Saving for the Future Act would mandate minimum employer contributions

Recently, two senators introduced new legislation that seeks to make saving for retirement a universal feature of employment for working Americans. The Saving for the Future Act was announced in early April by Senators Chris Coons of Delaware and Amy Klobuchar of Minnesota. Days later, companion legislation was introduced in the House by Representatives Scott Peters of California, Lucy McBath of Georgia, and Lisa Blunt Rochester of Delaware.

The act aims to address the nation’s retirement savings crisis. It looks to help ensure that workers can meet emergency expenses by requiring small business employers to make minimum contributions to an employee retirement savings plan. “Right now, a full third of non-retirees have zero retirement savings, and four in ten adults don’t have enough cash savings to meet a $400 emergency expense,” said Coons in a press release touting the merits of the legislation.

According to a summary of the bill, its most critical aspects call for a 50-cent minimum employer contribution per hour worked to a personal savings account for each employee who works at a company with 10 or more employees. After two years, the employer’s minimum contribution would rise to 60 cents per hour worked. The minimum contribution would also rise with the employee’s wage growth.

The first $2,500 in employer contributions would go to the employee’s universal personal account—called an UP-Savings account—which would be earmarked to pay for nonroutine (i.e., emergency) expenses. Subsequent employer contributions would be deposited into the employee’s universal personal retirement account—called an UP-Retirement account. Employees would be automatically enrolled in the employer’s savings program to contribute 4 percent of their salary. But they could opt out of the plan or choose a higher contribution level, maxing out at 10 percent of their compensation.

Small businesses who adopt the minimum contribution plans of the act would enjoy tax credits worth 50 percent of the minimum contributions made to the accounts of their first 15 workers and 25 percent of the minimum contributions made to the accounts of their next 15 workers. As an alternative, businesses with fewer than 100 employees could elect to have contributions deposited into a personal retirement account for each employee—called an UP account—which would be administered by the federal government.

Businesses with fewer than 10 employees would be allowed to opt out of the employer contribution requirement. But employees whose companies opt out of the program would still be given access to an UP-Retirement account and an individual tax credit to incentivize them to save. UP accounts, though managed by the federal government, would be portable and worker owned.

What these proposals mean for business owners

For retirement plan administrators and business owners who offer a workplace retirement plan to their employees, the signals are clear. Lawmakers are laser focused on improving the American retirement system through increased and easier access to retirement savings vehicles. Many provisions of RESA, the SECURE Act, and the Saving for the Future Act seek to lower the barriers to retirement saving for employees while placing the onus on employers to incentivize their employees to put aside money for the future. Getting ahead of the curve by reviewing your plan’s provisions and features, and noting where enhancements can be made, is a good first step toward preparing for anticipated legislative changes.