Senators Rob Portman (R-OH) and Ben Cardin (D-MD) have announced joint sponsorship of legislation with retirement plan implications: the Retirement Security and Savings Act of 2018 (yet unnumbered). This bill is their most comprehensive joint legislative effort since teaming up to help advance and enact retirement elements of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Pension Protection Act of 2006.
A news release issued by Sen. Portman’s office acknowledged that this legislation is intended to establish “a foundation for a broader bipartisan, bicameral retirement policy debate in the next Congress” (2019). The news release further notes that “[t]he senators will continue their efforts to improve this legislation.” It also identifies a wide spectrum of interest groups and retirement industry players whose support the senators claim to have.
Following is a high-level, preliminary summary of this bill’s provisions.
- Create a new automatic-enrollment/automatic-escalation safe harbor for 401(k)-type plans with higher contribution levels
- Provide a small employer tax credit for implementing automatic enrollment
- Simplify participant notices in automatic-enrollment type plans
- Liberalize the saver credit for contributions to employer-sponsored plans and IRAs, and make it refundable and payable to a retirement account
- Liberalize employer plan eligibility rules for less-than-full-time workers
- Apply certain retirement plan nondiscrimination tests (e.g., top-heavy) separately to part-time employees
- Allow nonspouse retirement account beneficiaries to do indirect (60-day) rollovers to inherited IRAs
- Exempt small aggregate retirement balances ($100,000 or less) from required minimum distributions (RMDs)
- Increase the RMD age in stages to age 75
- Reduce excise tax for RMD failures from 50 percent to 25 percent, and under certain circumstances to as low as 10 percent
- Reduce, under certain circumstances, the excise tax for IRA excess contributions from six percent to three percent
- Exempt earnings on timely-removed IRA excess contributions from the 10 percent excise tax on early (pre-59½) distributions
- Modernize the mortality tables that dictate RMD amounts
- Enhance the small employer tax credit for establishing a retirement plan
- Provide an employer tax credit for implementing automatic employee re-enrollment every three years
- Treat certain student loan repayments as qualifying for employer matching contributions to a retirement plan
- Treat employer-provided retirement planning services received in lieu of compensation as nontaxable
- Allow an employer to make additional nonelective contributions to SIMPLE IRA plans
- Allow self-correction of more inadvertent retirement plan operational failures
- Expand the investments suitable for 403(b)(7) custodial accounts
- Allow “de minimis” incentives to employees to contribute deferrals to certain employer-sponsored plans (without being considered to violate the contingent benefit rule)
- Provide a second, higher catch-up deferral amount for those contributing at age 60 or older (current basic catch-up eligibility begins at age 50)
- Raise the maximum qualifying longevity annuity contract (QLAC) contribution amount (amount excludable from RMDs) from $125,000 to $200,000
- Allow certain annuities that feature accelerating payments to satisfy RMD requirements
- Enhance the ability to partially annuitize retirement benefits
- Authorize a study and report to Congress on current reporting and disclosure requirements
- Consolidate certain defined contribution retirement plan notices
- Simplify retirement plan distribution notice requirements
- Exempt retirement plans from required recoupment of inadvertent overpayments to participants, and legitimize the rollover of such amounts
- Allow custodial accounts of terminating 403(b)(7) plans to remain subject to 403(b)(7) rules, rather than requiring distribution from the account to the owner
- Allow greater flexibility to use base pay for determining retirement benefits (excluding certain overtime pay)
- Allow Roth-type deferral contributions to be made to SIMPLE IRA plans
- Permit an employer to apply catch-up deferral eligibility requirements separately to legitimate separate lines of business
- Liberalize the substantially equal periodic payment rules to allow transfers or rollovers between certain qualified plans if net periodic distributions (e.g., annual) comply with the distribution schedule
- Enhance the ability of terminating employees to contribute payments for accumulated sick leave, vacation pay, severance or back pay to a deferral-type retirement plan
- Permit the merger or transfer of plan assets from qualified retirement plans into 403(b) plans
- Exempt designated Roth accounts in employer-sponsored plans (e.g., Roth 401(k), Roth 403(b)) from RMD requirements
- Extend the qualified charitable distribution exemption from taxation to include SEP, SIMPLE IRA, qualified retirement, 403(b), and governmental 457(b) plans
- Permit rollovers from Roth IRAs to employer-sponsored plans, with directive to the Secretary of the Treasury to modify the regulations to permit
- Permit a spouse beneficiary of an employer-sponsored retirement plan account to elect to be treated as the employee for RMD purposes
- Address certain interest crediting rates, mortality rates, and PBGC premiums for defined benefit plans
It is likely that the concepts in this bill could influence legislative action in 2019 rather than in the soon-to-end 2018 session of the 115th Congress. After all, this legislation is being introduced against a backdrop of legislative uncertainty as Congress prepares to conclude its 2018 session with a substantially different cast of senators and representatives to convene the 116th Congress in January 2019.
Also looming over the completion of legislative business before the holiday recess is the threat of a partial government shutdown when funding for multiple government functions expires today, December 21. While temporary funding by way of a continuing resolution through February was considered and approved by the Senate, there is significant uncertainty over the ability of Congress and President Trump to reach an agreement that would enable this continued government funding.
Regardless, there appears to be a growing readiness on the part of Congress to consider comprehensive retirement savings reform and enhancement, as indicated by the multitude of bills in the 2018 session with retirement elements. For that reason alone, the Retirement Security and Savings Act of 2018 merits a detailed study for all of its potential implications.