Industry & Regulatory News

ERISA Advisory Council Recommends Updates to Fidelity Bond Guidance

The ERISA Advisory Council, a group established to advise the Secretary of Labor on matters related to welfare and pension benefit plans, issued recommendations that the Department of Labor (DOL) provide more clarity on fidelity bond rules. The Council’s recommendations are intended to help reduce noncompliance with the fidelity bond requirements among small plans.

To address this, the Council’s report recommended the DOL issue a new Interpretive Bulletin. The Interpretive Bulletin would cover much of the same content as Field Assistance Bulletin (FAB) 2008-04. The FAB currently provides guidance to plan sponsors on the circumstances under which fidelity bonds are required. However, the Council found that the FAB is less effective than an Interpretive Bulletin because it is not widely viewed by small plan sponsors or service providers.

Additionally, the Council recommended that the DOL issue a “Fidelity Bond Summary” as part of its sub-regulatory guidance. The summary would help clarify the purpose, basic requirements, and the distinct features of fidelity bonds.

The Interpretive Bulletin and summary would be focused on reaching small plan sponsors and commercial service providers who offer services to those sponsors. This is because the Council found that instances of noncompliance were concentrated among small plans.

The Council did not recommend any changes to existing statutes or regulations to increase coverage requirements because losses due to fraud or dishonesty that exceed existing coverage requirements were not reported in a significant number.


Disaster Tax Relief Act of 2019 Introduced in House

Tom Rice (R) of South Carolina introduced the Disaster Tax Relief Act of 2019 (H.R. 2145) in the United States House of Representatives. The purpose of this proposed legislation is to provide tax-related relief to victims of presidentially declared disasters that occurred after January 1, 2018 and before the enactment date this Act.

Tax relief specific to retirement savings arrangements include the following and applies to distributions taken from IRAs and tax-qualified employer-sponsored retirement plans.

  • Qualified disaster distributions would include amounts not to exceed the excess (if any) of $100,000, over the aggregate of any qualified disaster distributions received by the individual in all prior taxable years, received by an individual whose principal residence was located in a qualified disaster area and who suffered economic loss as a result.
  • Qualified distributions would include those taken on or after the date the qualified disaster incident began and on or before December 31 of the year after the year in which the qualified disaster incident began.
  • The 10 percent excise tax for early distributions would not apply to qualified disaster distributions.
  • Such distributions could be repaid over a three-year period, beginning on the day after the distribution was received.
  • Qualified disaster distributions from employer plans would not be subject to mandatory 20 percent withholding.
  • Inclusion in income of qualified disaster distributions would be done ratably over a three-year period, unless a taxpayer chose otherwise.
  • Certain retirement plan distributions taken for purchase of a principal residence, but not used due to disaster events, could be recontributed.
  • Loan amounts up to $100,000 could be taken from an eligible employer retirement plan.
  • Plan loan repayments following disaster events could be delayed up to a year; this delay would not alter loan amortization (in effect, lengthening a five-year amortization period).
  • A plan amendment necessary to comply with these provisions could be made up to and including the last day of the 2020 plan year, or a later date if prescribed by the Secretary of the Treasury (governmental plans two years later).

The bill was referred to the House Committee on Ways and Means following its introduction. The prospect of enactment is unclear at this time. Watch the news at ascensus.com for progress of this legislation, as warranted.


New IRS Guidance Expands Retirement Plan Self-Correction Program

The IRS released an updated version of the Employee Plans Compliance Resolution System (EPCRS) in Revenue Procedure 2019-19 on April 19, 2019. The revised system expands the availability of self-correction options for correcting certain plan failures in three primary areas: plan document failures, operational failures, and loan failures. The IRS anticipates that this expanded guidance will increase plan compliance and reduce the costs and burdens associated with maintaining plan compliance.

Plan Document Failures
The revised procedure allows for the self-correction of certain plan document failures, other than the initial failure to adopt a qualified plan or 403(b) plan document timely, as long as the plan has a favorable letter at the time of correction. The EPCRS generally considers plan document failures as “significant” failures, meaning the failure would need to be corrected by the end of the second plan year following the year the failure occurred to qualify for self-correction.

Operational Failures
The EPCRS now allows for the self-correction of operational failures by retroactive plan amendment when a plan sponsor fails to follow the terms of its plan document. This allows a plan sponsor to conform the terms of the plan document to the prior operations. Self-correcting these operational failures by retroactive amendment can occur if these three conditions are met.

  1. The plan amendment would result in an increase of a benefit, right, or feature.
  2. The increase in the benefit, right, or feature is available to all eligible employees.
  3. Providing the increase in the benefit, right, or feature is permitted under the Internal Revenue Code and satisfies the EPCRS general correction principles.

Loan Failures
The EPCRS allows a defaulted loan to be self-corrected by either the participant making a lump-sum payment, re-amortizing the outstanding balance of the loan, or some combination of the two options. Previously these options were only available when filing through the voluntary correction program (VCP). The revised procedure also allows for a deemed loan to be reported on Form 1099-R in the year of correction through the self-correction program (SCP).

Additionally, EPCRS now provides for the self-correction of a plan loan failure where spousal consent was not obtained (if the plan required it), by obtaining spousal consent after the fact.

The revised procedure now allows for the self-correction of a plan exceeding its document-specified number of loans outstanding. Plan sponsors can retroactively amend their plans to increase the number of loans allowed under the plan document.

While the EPCRS has greatly expanded the availability of self-correction for loan failures, some restrictions do apply. Revenue Procedure 2019-19 states that in order to receive a no-action letter through the Department of Labor’s Voluntary Fiduciary Correction Program (VFCP), loan default failures would still need to be corrected under VCP. Finally, loan failures arising from loans that exceed the statutory loan limits—those that exceed the maximum period or that were not subject to level amortization—do not qualify for self-correction.


IRS Issues FAQs for Qualified Business Income Deduction

The IRS has published on its website a list of frequently asked questions relating to the qualified business income (QBI) deduction. The deduction was created by the 2017 Tax Cuts and Jobs Act, under Internal Revenue Code Section 199A. It permits noncorporate taxpayers to deduct up to 20 percent of QBI, plus 20 percent of qualified real estate investment trust dividends and qualified publicly traded partnership income. QBI is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business. Individuals and some trusts and estates with QBI, qualified real estate investment trust dividends, or qualified publicly traded partnership income may be eligible for the deduction.

The IRS explains in the FAQs that deductible contributions that the taxpayer makes to a qualified retirement plan, savings incentive match plan for employees of small employers (SIMPLE) IRA plan, or simplified employee pension (SEP) plan are accounted for when determining QBI.


Washington Pulse: Will RESA Succeed This Time?

No other legislation in recent memory is more deserving of the label “survivor” than the Retirement Enhancement and Savings Act (RESA). Since 2016, multiple versions of RESA have been championed by high-profile lawmakers (both past and present). This legislation has offered many innovative ideas to expand retirement savings opportunities and has served as a model for other retirement reform bills.

RESA 2019 has now been introduced by Senate Finance Committee Chairman Charles Grassley (R-IA) and Ranking Member Ron Wyden (D-OR). Its introduction came just one day before the House Ways and Means Committee gave unanimous approval to nearly identical legislation, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (for more information on the SECURE Act of 2019, see Ascensus’ prior Washington Pulse). With this apparent unanimity in the Senate and House, hopes are high that 2019 may be a year for major retirement savings enhancement. The RESA 2019 provisions are described below.

Simplify, Create Incentives for New Plan Creation

The following RESA 2019 provisions are intended to reduce the complexity of establishing and enhancing retirement plans and offer tax incentives to do so.

  • Reform multiple employer plans (MEPs): Relax current rules for employer participation in a MEP and create a new variation to be known as a “pooled employer plan,” or PEP. Both allow consolidation of administrative responsibility and expense (effective for 2023 and later plan years).
    • Multiple participating businesses with a common interest would generally be administered as MEPs
    • Multiple participating businesses without a common interest would generally be considered to be part of a PEP
    • Simplified Form 5500-SF plan reporting would be allowed for smaller MEPs or PEPs
    • Compliance failures by one or more participating employers would not jeopardize the qualified status of the entire MEP or PEP (ends the “one bad apple” rule)
  • Allow more time to establish a plan: Permit qualified plans (e.g., profit sharing or pension plans) to be established as late as the sponsoring employer’s tax return deadline, including extensions. Certain plan options—like employee deferrals—would not be eligible for the extension (effective for 2020 and later taxable years).
  • Increase plan start-up credit for small employers: Increase the small employer retirement plan start-up credit from $500 to a maximum of $5,000 per year, available for three years beginning with the year the plan is established (effective for 2020 and later taxable years).
  • Create automatic enrollment credit: Provide a tax credit of up to $500 per year for small employers (100 or fewer employees) that implement automatic enrollment in existing or new 401(k) or SIMPLE IRA plans. The credit would be available for three years beginning with the year that automatic enrollment is allowed   (effective for 2020 and later taxable years).
  • Extend period for electing safe harbor 401(k) design: 401(k) plans could elect testing safe harbor designs without prior notice if an employer nonelective (vs. employer match) contribution is made; the deadline would be at least 31 days before the end of the plan year with a three percent contribution, or up to the deadline for removing excess contributions for a plan year—the close of the following plan year—if a four percent contribution is made (effective for 2020 and later plan years).
  • Create annuity selection safe harbor: Provide a new safe harbor for a plan fiduciary’s selection of an annuity provider—deemed to satisfy the “prudent expert” standard—when offering lifetime income plan investments (no specified effective date).

Promote Greater Saving in Employer Plans

RESA 2019 would encourage broader employee participation, greater employee saving, and clearer participant understanding of retirement savings adequacy.

  • Remove the cap on deferrals in safe harbor 401(k) plans: Eliminate the 10 percent maximum deferral rate in a 401(k) plan that employs automatic enrollment and automatic deferral increases in a qualified automatic contribution arrangement (QACA) after the initial period (effective for 2020 and later plan years).
  • Require new lifetime income disclosure: Defined contribution plan sponsors would be required to provide, at least annually, a projection of a lifetime income stream that could be generated by a participant’s accrued benefit; employers would not be held liable for the projection (Effective for benefit statements provided more than 12 months after the DOL issues 1) interim guidance, 2) the interest assumptions to be used, and 3) a model disclosure).

General Provisions Affecting Employer Plans

RESA 2019 would make targeted changes to employer plans in order to encourage asset preservation, simplify plan administration, and enhance compliance.

Provide lifetime income portability: Allow participants in a qualified plan, 403(b), or governmental 457(b) plan to roll over lifetime income investments to an IRA or another retirement plan without an otherwise available distribution event if the employer’s plan no longer offers such investments (effective for 2020 and later plan years).

Allow distributions of terminating 403(b) plans: Allow the plan administrator or custodian of a 403(b) plan to distribute such accounts in-kind to a participant or beneficiary when the 403(b) plan is being terminated (enabling guidance to be issued within six months of enactment).

Prohibit credit card loans: Treat as distributed and subject to taxation a retirement plan loan enabled through a credit card or similar program. Existing loans provided through credit card systems in place as of September 21, 2016 are considered “grandfathered” unless one of the following conditions apply (effective for 2020 and late plan years).

  • The loan is for $1,000 or less.
  • The loan is used for gambling or for the purchase of certain items such as liquor.

Permit shared Form 5500 filing: Allow employers that sponsor defined contribution plans that have the same trustee, administrator, fiduciaries, plan year, and investment options to file a common Form 5500 (effective for 2022 and later plan years).

Allow nondiscrimination relief for closed defined benefit plans: Provide nondiscrimination testing relief for defined benefit pension plans that are closed to new participants; such employers generally offer a defined contribution plan to new employees (effective generally upon enactment, or—if elected—for 2014 and later plan years).

Increase penalties for plan reporting failures: Retirement plan information reporting failures would result in the following penalties (effective for returns, statements, and notices required January 1, 2020, and thereafter).

  • Form 5500, $100 per day, up to a maximum of $50,000
  • Form 8955-SSA (deferred benefit reporting), $2 per participant per day, up to a maximum of $10,000 for failing to file, $2 per day, up to a maximum of $5,000 for failing to file of notification of change
  • Withholding notice, $100 per failure, up to a maximum of $50,000

Clarify church retirement plan rules: Clarify which employees are eligible to participate in retirement plans sponsored by church-controlled organizations (effective for all years (i.e., years beginning before, on, or after the date of enactment).

Lower premiums for pension plans of cooperatives and charities: Reduce Pension Benefit Guaranty Corporation (PBGC) insurance premiums for defined benefit plans of certain cooperatives and charities to $19 per participant for fixed-rate premiums, and $9-per-$1,000 of under-funded vested benefits for variable rate premiums (effective for 2019 and later plan years).

Changes Affecting Employer Plans and IRAs

These RESA 2019 provisions would affect employer plans and IRAs.

Require quicker payout to beneficiaries: With limited exceptions, most nonspouse beneficiaries of IRAs, qualified defined contribution, 403(b), and governmental 457(b) plans would be required to distribute inherited amounts within five years. New reporting requirements to ensure compliance would apply (effective for plan participant/IRA owner deaths occurring in 2020 or later, and to beneficiary reporting beginning with the 2021 calendar year).

Exceptions include the following.

  • Aggregate inherited IRA and employer plan balances that do not exceed $400,000
  • The disabled
  • The chronically ill
  • Beneficiaries not more than 10 years younger than the deceased participant or IRA owner
  • Minors (a 5-year payout period would begin upon reaching the age of majority)

Enhance IRA Contributions

RESA 2019 would significantly expand Traditional IRA contribution eligibility.

Permit Traditional IRA contributions at any age: Similar to Roth IRA owners, Traditional IRA owners with earned income could make IRA contributions at any age, not just before age 70½ (effective for 2020 and later taxable years).

Allow graduate student IRA contributions: Certain fellowship, stipend, and similar payments to graduate students and postdoctoral students would be treated as earned income for IRA contribution purposes (effective for 2020 and later taxable years).

Permit IRAs and S Corporation bank shares: IRAs would be permitted to hold shares of S Corporation banking entities (effective January 1, 2020).

Will RESA 2019 Become a Reality?

With apparent bipartisan support in both the House and Senate, there seems to be growing momentum that could result in 2019 being the year in which we see significant retirement legislation get passed. Ascensus will continue to monitor the progress of RESA 2019 and its counterpart legislation in the House, the SECURE Act. Visit Ascensus.com for the latest developments.

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Several Retirement and IRA Topics on IRS’ Priority Guidance Plan List

The Department of the Treasury and IRS have released a second quarter update to the 2018-2019 fiscal year Priority Guidance Plan (PGP). The PGP lists items of regulatory guidance that the IRS is—or hopes to be—working on during the fiscal year. A high priority item highlighted in the update is the release of guidance to implement provisions of the Tax Cuts and Jobs Act (TCJA), the tax reform legislation enacted in December of 2017. Some items of guidance have remained on the PGP over several fiscal years.

Following are the pending guidance items related to employee benefits.

  • Regulations under Internal Revenue Code Section (IRC Sec.) 401(a)(9) updating life expectancy and distribution period tables for purposes of the required minimum distribution (RMD) rules
  • Guidance on hardship distributions from employer-sponsored retirement plans (in response to the Balanced Budget Act of 2018 provisions)
  • Guidance on missing retirement plan participants
  • Final regulations on minimum present value requirements for defined benefit (DB) pension plans
  • Guidance updating regulations on service credit and vesting
  • Hybrid DB pension plan interest credit and annuity conversion factor guidance
  • Multiple employer plan guidance
  • Church plan guidance
  • Guidance on Traditional and Roth IRAs, Including contributions and excise taxes
  • Affiliated service group guidance
  • Additional guidance on lifetime income payments from employer plans and IRAs
  • Regulations on deferred vested benefit reporting requirements
  • Final regulations on various issues for nonqualified plans subject to IRC Sec. 409A
  • Final regulations on “ineligible” nonqualifed plans under IRC Sec. 457(f)
  • Regulations for qualified ABLE programs (proposed regulations issued in 2015)
  • Updated guidance on use of truncated taxpayer identification numbers (SSNs); proposed regulations issued in 2017

Senate and House Democrats Propose Novel Retirement Program With Required Employer Contributions

Democratic lawmakers in the U.S. Senate and House of Representatives have jointly introduced the “Saving for the Future Act,” which is legislation modeled on the United Kingdom’s National Employment Savings Trust (NEST) program. The bill is sponsored in the Senate by Sens. Amy Klobuchar (D-MN) and Chris Coons (D-RI), and in the House by Reps. Lisa Blunt Rochester (D-PA), Scott Peters (D-CA), and Lucy McBath (D-GA).

This legislation includes the following provisions.

  • Automatic employee enrollment at a deferral rate of 4 percent, automatic deferral increase to as much as 10 percent, optional employee deferral choice or opt-out
  • First $2,500 would reside in an “UP-Savings” account for nonretirement, nonroutine expenses (e.g., medical event, unemployment, accident, etc.), and amounts above in an “UP-Retirement” account (employee may elect to have all contributions paid to UP-Retirement account)
  • Mandatory employer contributions of 50 cents per hour worked for two years, 60 cents per hour thereafter (employers with 10 or fewer employees could opt out of employer contributions, and their employees to receive a tax credit)
  • Optional employer contributions above the minimum paid to UP account or to another retirement plan
  • Maximum employee deferrals at one-half the 401(k)/403(b)/457(b) annual amount (e.g., $9,500 without catch-up for 2019)
  • Distribution options include lifetime income, term-certain payments, or percentage of balance payments (lump sum does not appear available)
  • Employer tax credit of 50 percent of minimum contributions paid to accounts of the first 15 full-time equivalent employees, 25 percent of contributions paid to accounts of next 15 (no credit for contributions above 30 employees), and tax-exempt employers eligible for a refund
  • Oversight by a board similar to the Federal Thrift Investment Board (governs federal Thrift Savings Plan program), but administration to be contracted-out to the private sector
  • Investments to include “products that allow[s] for diversification across stocks and bonds, including low-fee index funds,” defaults to “fully diversified fund” or target-date type fund
  • Portability when changing jobs to be achieved by tying a worker’s balance to the board/private sector administered program, not to an employer plan’s trust

This legislation’s concept and features differ markedly from the current U.S. defined contribution plan structure. That, along with the fact that it contrasts with pending bills that build on the current savings framework and that the legislation has no Republican sponsors, make it likely that the Saving for the Future Act will face an uphill climb to achieve acceptance


Washington Pulse: After Near Misses, Congress Zeroes in on Major Retirement Reforms

Lawmakers in the U.S. House of Representatives and Senate have not given up on enacting major retirement savings enhancements. Their multiple attempts in 2017 and 2018 yielded incremental changes within tax reform and budget bills, but more comprehensive changes eluded them. Such legislation has become a priority and has bipartisan support. This support is apparent among Republicans and Democrats in both the House and Senate, including the top leadership levels of both parties.

Under consideration is the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, co-sponsored by Representatives Richard Neal (D-MA), Kevin Brady (R-TX), Ron Kind (D-WI), and Mike Kelly (R-PA). During bill mark-up, provisions from another bill were added that would enhance the formation of multiple employer plans (MEPs). Approved by the House Ways and Means Committee, the SECURE Act of 2019 has now been reported to the full House for debate and a vote. (Similar legislation has been introduced in the Senate, and is being analyzed.)

New Incentives to Establish or Enhance Employer Plans

The following SECURE Act provisions would create new incentives and modify existing incentives for employers to establish retirement plans. They would also broaden the time window within which employers may establish plans.

  • Multiple employer plans: Enhance an employer’s ability to participate in a MEP and add a new variant to be known as a “pooled employer plan,” or PEP. Both have basic features in common; the latter to be administered by a pooled plan provider (effective for 2021 and later plan years).
    • Multiple participating businesses with a common interest would generally be part of a MEP.
    • Multiple participating businesses with no common interest other than plan sponsorship would generally be part of a PEP.
    • Smaller MEPs/PEPs could, as permitted by the IRS, file a simplified short Form 5500-SF plan tax return.
    • Noncompliance by one participating employer would not disqualify the entire MEP/PEP arrangement (eliminates the “bad apple” rule).
  • Deadline to establish a plan: Allow an employer to establish a qualified plan—such as a profit sharing or pension plan—as late as its business tax filing deadline, including extensions. Under current rules, employers must establish a qualified plan by the last day of their business year. The extension would not apply to certain plan provisions, such as elective deferrals (effective for 2020 and later taxable years).
  • Small employer plan start-up credit: Increase the small employer retirement plan start-up tax credit from $500 to a maximum of $5,000 per year, available for three years (effective for 2020 and later taxable years).
  • Automatic enrollment credit: Provide a new automatic enrollment tax credit, available to employers with new or existing small 401(k) plans (100 or fewer employees) or SIMPLE IRA plans that include automatic enrollment; maximum tax credit $500 per year, for up to three years (effective for 2020 and later taxable years).
  • Election of 401(k) nonelective safe harbor design: Eliminate the safe harbor notice requirement for employers that make nonelective safe harbor plan contributions and grant employers more time to amend their plans to implement a nonelective 401(k) safe harbor plan feature. Amendments may be made up to 30 days before the end of a plan year. However, amendments may be made up to the deadline for removing excess contributions for a plan year (generally, by the close of the following plan year) if the plan is also amended to require a four percent nonelective safe harbor contribution (effective for 2020 and later plan years).
  • Annuity selection safe harbor: Create a new safe harbor for a plan fiduciary to meet ERISA’s “prudent man rule” when selecting an insurer and an annuity contract to offer lifetime income options under a plan (no specified effective date).

New Ways to Save More in Employer Plans

The next set of provisions would allow employers more freedom to automatically increase employees’ deferral contributions, require employers to share with each participant a projection of future retirement benefits, and promote plan entry for certain part-time employees.

  • Higher cap on deferrals in safe harbor 401(k) plans: Increase from 10 percent to 15 percent the maximum deferral rate that can apply in a 401(k) plan as a result of automatic enrollment and automatic deferral increases in a qualified automatic contribution arrangement (QACA) (effective for 2020 and later plan years).
  • Lifetime income disclosure: Require defined contribution plans to provide, at least annually, a projected lifetime income stream that a participant’s accrued benefit could generate; employers would not be liable for amounts projected (effective for benefit statements provided more than 12 months after the DOL issues guidance, interest assumptions to be used, and a model disclosure. The bill prescribes that all three be completed within one year of the date of enactment).
  • Participation by less than fulltime employees: Generally allow employees who have three consecutive 12-month periods of 500 hours of service and satisfy the plan’s minimum age requirement to make elective deferrals in an employer’s 401(k) plan. The current, more restrictive eligibility rules could continue to be applied, however, to other contribution sources (e.g., matching contributions) and to ADP/ACP safe harbor plans. Employers would also be permitted to exclude such employees from coverage, nondiscrimination, and top-heavy test rules (effective for 2021 and later plan years, but no 12-month period that begins before January 1, 2021, shall be taken into account).

More Targeted Provisions Affecting Employer Plans

The SECURE Act contains a number of additional, more targeted provisions that apply to employer plans.

  • Custodial accounts of terminating 403(b) plans: Allow the plan administrator or custodian of a 403(b) custodial account to distribute the account in kind to a participant or beneficiary when the employer is terminating the 403(b) plan (retroactive; effective for 2009 and later taxable years).
  • Lifetime income portability: Allow plan participants in a qualified plan, 403(b) plan, or governmental 457(b) plan to roll over lifetime income investments to an IRA or another retirement plan without a traditional distribution event if their plan no longer permits such investments (effective for 2020 and later plan years).
  • Higher penalties for plan reporting failures: Retirement plan information reporting failures would lead to the following increased penalties (effective for filings and notices required January 1, 2020, and thereafter).
    • Form 5500, $105 per day, up to a maximum of $50,000
    • Form 8955-SSA (deferred benefit reporting), $2 per day, up to a maximum of $10,000 for failing to file, $2 per day, up to a maximum of $5,000 for failing to file a notification of change
    • Withholding notices, $100 per day, up to a maximum of $50,000
  • Credit card loan prohibition: Treat retirement plan loans enabled through credit card or similar programs as distributed from the plan and subject to taxation (applies to loans made after the date of enactment).
  • Shared Form 5500 filing: Allow employers sponsoring defined contribution plans that have the same trustee, administrator, fiduciaries, plan year, and investment options, to file a common Form 5500 (effective for 2022 and later plan years).
  • Nondiscrimination relief for closed pension plans: Provide nondiscrimination testing relief for defined benefit pension plans closed to new participants; such employers generally offer a defined contribution plan as an alternative for new employees (effective upon enactment, or—if elected—for 2014 and later plan years).
  • Community newspaper pension funding relief: Allow sponsors of certain plans maintained for community newspapers to calculate defined benefit plan contributions with interest rates and amortization periods that reduce funding requirements (effective for plan years ending after December 31, 2017).
  • Church retirement plan rules: Clarify which employees may participate in retirement plans sponsored by church-controlled organizations (effective for past, present, and future plans years).
  • Pension plans of cooperatives and charities: Reduce Pension Benefit Guaranty Corporation (PBGC) insurance premiums for defined benefit plans of certain cooperatives and charities to $19-per-participant for fixed-rate premiums, and $9-per-$1,000 of unfunded vested benefits for variable-rate premiums (effective on date of enactment).

New Provisions Affecting Employer Plans and IRAs

The following SECURE Act provisions could affect both employer plans and IRAs, or further connect these types of plans.

  • More rapid payouts to beneficiaries: Most nonspouse beneficiaries of IRA, qualified defined contribution, 403(b), and governmental 457(b) plan balances would generally be required to distribute inherited amounts within 10 years (effective for participant/IRA owner deaths in 2020 or later years; 2022 or later years for governmental plans; special delay to accommodate contracts of certain collectively bargained plans). Exceptions include those who, at the time of the account owner’s death, are
    • spouses,
    • disabled individuals,
    • certain chronically ill individuals,
    • beneficiaries whose age is within 10 years of the decedent’s age,
    • minors (they would begin a 10-year payout period upon reaching the age of majority), and
    • recipients of certain annuitized payments begun before enactment of the SECURE Act.
  • Delayed age for beginning RMDs: The age when required minimum distributions (RMDs) from Traditional IRAs, qualified plans, 403(b) plans, and governmental 457(b) plans must generally begin would be increased from age 70½ to age 72 (effective for distributions required in 2020 and later years, for those who reach age 70½ in 2020 or a later year).
  • Birth/adoption excise tax exception: The birth of a child or adoption of a child or individual who requires support would qualify as a distribution event and an exemption from the 10 percent excise tax (if applicable) for distributions of up to $5,000 in aggregate from IRAs and defined contribution qualified plans, 403(b) plans, and governmental 457(b) plans; amounts could be repaid (effective for distributions in 2020 and later years).
  • Difficulty of care” as eligible retirement income: Increase the contribution limit to qualified plans, 403(b) plans, and IRAs to include “difficulty-of-care” payments (effective upon enactment for IRAs, and for 2016 and later plans years for employer plans).

More Flexibility for IRA Contributions

The following provisions would specifically affect IRAs.

  • Traditional IRA contributions at any age: Taxpayers with earned income could make Traditional IRA contributions at any age, not just for years before reaching age 70½, as under current law (effective for 2020 and later taxable years).
  • Graduate student IRA contributions: Certain stipend, fellowship, and similar payments to graduate and postdoctoral students would be treated as earned income for IRA contribution purposes (effective for 2020 and later taxable years).

New Eligible Expenses for 529 Plans

The SECURE Act also broadens the definition of eligible expenses for qualified tuition or “529” plans.

  • Eligible expense categories: 529 plan distributions taken for certain expenses related to the following items would be considered qualified, and therefore not subject to taxation (effective for distributions in 2019 and later years).
    • Registered apprenticeships
    • Home schooling
    • Repayment of student loans of a 529 plan beneficiary—or sibling—up to $10,000 (total, not annual)
    • Expenses in addition to tuition for attendance at an elementary or secondary public, private, or religious school

Will This Time be Different?

Significant bipartisan support has been present for retirement and education savings reform for the past several years, yet efforts to enact legislation have fallen short. Now, in the 116th Congress, momentum seems to be building. Whether the outcome this time will be different remains to be seen.  Ascensus will closely monitor the progress of the SECURE Act and comparable Senate legislation. Visit Ascensus.com for the latest developments.

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Newly Introduced Retirement Reform Bill Has Better Chance of Progressing

Senate Finance Committee Chairman Charles Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) have announced the introduction of the Retirement Enhancement and Savings Act (RESA) of 2019.

This legislation is a version of similar legislation introduced several times dating back to 2016. This year, however, the prospect of enacting major retirement enhancement legislation seems especially promising, given indications of bipartisan support in both the House and Senate.

RESA 2019 includes these retirement changes and enhancements.

  • Enhance the ability of employers to participate in multiple employer plans (MEPs)
  • Remove the 401(k) automatic enrollment safe harbor deferral cap entirely (now 10 percent)
  • Simplify 401(k) safe harbor rules and give employers more flexibility in electing to implement a safe harbor design
  • Increase the maximum tax credit for small employer plan start-up costs
  • Create a small employer tax credit for implementing automatic enrollment in 401(k) and SIMPLE IRA plans
  • Treat taxable non-tuition fellowship and stipend payments as compensation for IRA contribution purposes
  • Repeal the maximum age for making Traditional IRA contributions
  • Permit IRAs to hold shares of S Corporation banking entities
  • Generally prohibit credit card loans from employer plans
  • Enhance the preservation and portability of lifetime income features
  • Allow 403(b) participants to retain individual tax-favored custodial accounts upon a 403(b) plan termination
  • Clarify certain retirement plan rules relating to church controlled organizations
  • Extend the deadline to adopt a retirement plan to the employer’s tax return due date (including extensions) for that year
  • Allow combined Form 5500 reports for certain similar plans
  • Require benefit statements to defined contribution plan participants to include an annual lifetime income disclosure based on participant balance
  • Provide a fiduciary safe harbor to employers for selection of a lifetime income provider
  • Protect older, longer service employees in defined benefit plans by providing nondiscrimination relief to plans that are closed to new participants
  • Modify the Pension Benefit Guaranty Corporation premiums for single-employer, multi-employer, and cooperative and small employer charity (CSEC) plans
  • Reinstate, for one year, certain tax benefits for volunteer firefighters and emergency medical responders
  • Require most nonspouse beneficiaries of defined contribution plans and IRAs to withdraw inherited balances within 5 years of the death of the account owner; would not apply to the first $400,000 of inherited balances
  • Increase penalties for failure to file certain information returns and IRS Form 5500
  • Allow the IRS to share certain returns and return information with other governmental agencies for tax administration purposes

Congress Set to Act on Major Retirement Legislation

The House Ways & Means Committee is expected to mark up proposed tax legislation on April 2. The bills to be marked up include the SECURE Act and an open multiple employer plan (MEP) bill. The SECURE Act is based on previously introduced legislation known as the Retirement Enhancement and Savings Act (RESA) and also includes several additional provisions from other bills that have been added to garner bipartisan support.

The RESA bill did not advance in the House during the 115th Congress due to a lack of support at the senior leadership level. The Secure Act and open MEP bills, however, are said to have bipartisan senior leadership sponsors in the House. Bipartisan leadership support is also expected for upcoming Senate versions of the bills, anticipated to be released today (April 1). Consequently, though there are many steps in the legislative process, it appears more likely than in the past that these bills could advance.

The SECURE Act includes the following provisions. Watch Ascensus News for detailed analysis of the bills as they are released.

  • Increase the 401(k) automatic enrollment safe harbor deferral cap from 10 percent to 15 percent
  • Simplify 401(k) safe harbor rules
  • Increase the maximum tax credit for small employer plan start-up costs
  • Create a small employer tax credit for including automatic enrollment in new 401(k) and SIMPLE IRA plans
  • Treat taxable non-tuition fellowship and stipend payments as compensation for IRA contribution purposes
  • Repeal the maximum age for making Traditional IRA contributions
  • Prohibit credit card loans from employer plans
  • Enhance the preservation and portability of lifetime income features
  • Allow 403(b) participants to retain individual custodial 403(b) accounts upon a 403(b) plan termination
  • Clarify certain retirement plan rules relating to church controlled organizations
  • Allow long-term part-time workers to participate in 401(k) plans
  • Allow penalty-free retirement arrangement withdrawals in the event of birth or adoption of a child
  • Increase the age to begin required minimum distributions from 70½ to age 72
  • Provide pension funding relief to certain community newspapers that sponsor defined benefit pension plans
  • Treat tax-free “difficulty of care” payments received by home healthcare workers as compensation for retirement plan contribution purposes
  • Extend the deadline to adopt a retirement plan to the employer’s tax return due date (including extensions) for that year
  • Allow combined Form 5500 reports for certain similar plans
  • Require benefit statements to defined contribution plan participants to include an annual lifetime income disclosure based on participant balance
  • Provide a fiduciary safe harbor to employers for selection of a lifetime income provider
  • Protect older, longer service employees in closed defined benefit plans
  • Reinstate, for one year, certain tax benefits for volunteer firefighters and emergency medical responders
  • Expand 529 plans to cover the cost of apprenticeships, homeschooling, attendance at private elementary, secondary and religious schools, and up to $10,000 of student loan repayments for a student or his/her siblings
  • Require most nonspouse beneficiaries of defined contribution plans and IRAs to withdraw inherited balances within 10 years of the death of the account owner
  • Increase penalties for failure to file certain information returns and IRS Form 5500
  • Allow the IRS to share certain returns and return information with other governmental agencies for tax administration purposes