Pending legislation could significantly change the retirement plan landscapeContributor Dan Notto
The tax reform bill that was recently passed required a huge effort by Congress, consuming much of its time and energy, but changes affecting retirement plans were modest. (See our December 19, 2017 Special bulletin: Legislative and regulatory update for a summary of those changes.) However, a number of bills have been introduced in recent weeks that, in addition to simplifying some of the rules, could encourage employers to set up plans and help increase employees’ retirement savings. Many of these changes have been proposed in the past and enjoy bipartisan support.
Here is a brief summary of some of the recently introduced bills:
The Automatic Retirement Plan Act (H.R. 4523)
Introduced by Rep. Richard E. Neal (D-MA) on December 1, 2017
- Open multiple employer plans (MEPs): Permit unrelated employers to participate in a MEP. This provision is similar to the open MEP proposal in the Retirement Security for American Workers Act (H.R. 854), a bipartisan bill introduced early last year. For an overview of MEPs and a summary of that bill, please see our 2Q 2017 Legislative and regulatory bulletin .
- Fiduciary relief for small employers: Relieve employers with 100 or fewer employees of fiduciary duty if they participate in a MEP offered by a provider that agrees to assume fiduciary responsibility and meets certain other requirements.
- Retirement plan mandate: Require most employers to maintain a 401(k) or 403(b) plan in which employees are automatically enrolled at 6% of pay, with automatic contribution escalation at 1% per year up to 10% of pay.
The Small Business Add Value for Employees (SAVE) Act (H.R. 4637)
Introduced by Rep. Ron Kind (D-WI) and Rep. David G. Reichert (R-WA) on December 13, 2017
- Open MEPs: Permit unrelated employers to participate in a MEP, but only if the employer has no more than 500 employees.
- New 401(k) nondiscrimination safe harbor: Create a new 401(k) nondiscrimination safe harbor for plans that automatically enroll employees at a starting rate of 6% of pay, with automatic contribution escalation at 2% per year to at least 10%. Employer matching contributions would be required (100% on employee contributions up to 1% of pay, 50% on the next 5% and 25% on the next 4%).
- Lifetime income disclosure: Require defined contribution (DC) participant statements to include a disclosure of the monthly amount a participant would receive as a single or joint life annuity, based on current balance.
- Annuity selection safe harbor: Provide a fiduciary safe harbor for plan sponsors that select insurance companies to provide lifetime income in DC plans
The Retirement Plan Simplification and Enhancement Act (H.R. 4524)
Introduced by Rep. Richard E. Neal (D-MA) on December 1, 2017
- Required minimum distributions (RMDs): Eliminate RMDs for individuals with aggregate balances in plans and IRAs of not more than $250,000, and increase the age at which RMDs must commence to 71 in 2019, 72 in 2024 and 73 in 2029.
- Traditional IRA contributions: Permit individuals who are still working after reaching age 70½ to continue contributing to traditional IRAs.
- Qualified longevity annuity contracts (QLACs): Increase the amount that could be used to purchase a QLAC to the lesser of $200,000 or 100% of an individual’s plan or IRA balance.
- Plan start-up credit: Increase the plan start-up credit for employers with 100 or fewer employees to a maximum of $5,000 per year for the first three years.
- Correction of automatic enrollment errors: Permit employers to correct automatic enrollment and automatic escalation errors within 9½ months after the end of the plan year.
- Coverage of part-time employees: Require plans to permit employees who work at least 500 hours per year for three years to participate in a 401(k).
- 401(k) nondiscrimination safe harbor: Eliminate the 10% cap on automatic escalation of participant contribution rates in safe harbor 401(k)s.
- Consolidation of DC plan notices: Permit various notices required under ERISA and the Internal Revenue Code (for example, qualified default investment alternative and participant fee and investment notices) to be delivered in a single notice.
The Receiving Electronic Statements to Improve Retiree Earnings Act (H.R. 4610)
Introduced by Rep. Jared Polis (D-CO) with 32 co-sponsors, Republican and Democrat
- Electronic delivery: Permit any retirement plan document required to be given to participants or beneficiaries under ERISA or the Internal Revenue Code to be sent by email or posted to a website.
- Participant choice: Require that participants be able to choose their method of delivery of documents, including the ability to receive paper versions.
- Annual paper notice: Furnish a paper notice each year that reminds participants of their chosen method of delivery and describes their right to change the method.
Whether Congress enacts any of these measures in 2018 remains to be seen. But now that tax reform is on the books, and given the bipartisan support for open MEPs and other changes that could increase retirement plan coverage, these issues could finally get some serious attention in Washington.
We will continue to monitor all retirement plan-related legislative activity in Congress and keep you informed of any significant developments.
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