Legislative updates

House-Passed Financial Services Bill Would Block SEC Investment Guidance

The U.S. House of Representatives this week approved legislation to provide appropriations for funding various financial services provided by federal agencies. Added to the bill before its passage was an amendment by House Financial Services Committee Chair Maxine Waters (D-CA) that would block federal funding for administration and enforcement of guidance recently issued by the Securities and Exchange Commission (SEC). The vote was largely along party lines in the Democrat-controlled House.

Targeted by this amendment was the SEC’s recently finalized Regulation Best Interest and accompanying guidance, which provide standards of conduct for broker-dealers in making investment recommendations to retail customers. Elements of the guidance also impact registered investment advisors. In addition to retail investment accounts, the SEC guidance also applies to investment recommendations made for an individual’s own account in an employer-sponsored retirement plan, or an IRA, health savings account (HSA), Archer medical savings account (MSA), IRC Sec. 529 plan, or Coverdell education savings account (ESA).

Rep. Waters and others have criticized the SEC guidance as allegedly being insufficient to protect investor interests. This guidance generally is considered less restrictive than Department of Labor fiduciary investment advice guidance that was vacated by an appeals court in June of 2018.

Because appropriations bills must be identical in House and Senate versions, and there is a Republican majority in the Senate, many feel that de-funding the SEC investment guidance is unlikely to ultimately occur. The Senate has not yet taken up financial services appropriations.


President’s Executive Order Would Affect HSAs, FSAs, HRAs

On June 24, 2019, President Trump signed an Executive Order designed to “enhance the ability of patients to choose the healthcare that is best for them.”

The order has multiple directives that touch on different aspects of healthcare. It includes a request for the Department of Health and Human Services to produce a report on steps that the administration may take to eliminate surprise medical billing. It also instructs multiple departments to issue guidance on topics such as increasing price transparency for medical services, and developing rules to expand the use of health savings accounts (HSAs), health flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs).

The order specifically directs the Secretary of the Treasury to do the following.

  • Issue guidance that would permit HSA-compatible high deductible health plans to cover certain costs for individuals with chronic conditions before satisfying the plan deductible
  • Propose regulations that would expand eligible medical expenses under Internal Revenue Code Section 213(d) to include direct primary care arrangements and healthcare sharing ministries
  • Issue guidance that would increase the permitted FSA carryover amount (currently limited to $500)

The order places deadlines ranging from 120 to 180 days for the Treasury Department to produce the relevant guidance.

Watch Ascensus.com for any further information about this extensive guidance.


House Committee Approves Union Pension Plan Rehabilitation Bill

The House of Representatives’ Committee on Education and Labor has approved H.R. 397, the Rehabilitation for Multiemployer Pensions Act, which was introduced in January by House Ways and Means Committee Chair Richard Neal (D-MA). The bill was approved by the Democrat-controlled committee 26-18 on a party-line vote.

The legislation—also known as the Butch Lewis Act—is intended to address issues of insolvency common to a significant number of multiemployer (union) defined benefit pension plans. The bill as proposed would do the following.

  • Establish a Pension Rehabilitation Administration within the Treasury Department, and a related trust fund to make loans to certain union pension plans that are in critical-and-declining status, or insolvent
  • Enable the Treasury Department to issue bonds to fund the loans described above
  • Appropriate to the Pension Benefit Guaranty Corporation (PBGC) funds for additional assistance that some plans could qualify for beyond the above-described loans

The legislation must also be considered by the House Ways and Means Committee, which Rep. Neal chairs, as well as the House Appropriations Committee. The bill has 168 co-sponsors, the majority Democrats.


House Committee to Consider Union Pension Plan Rehabilitation Bill

The House of Representatives’ Committee on Education and Labor will reportedly consider and vote this week on H.R. 397, the Rehabilitation for Multiemployer Pensions Act, which was introduced in January by House Ways and Means Committee Chair Richard Neal (D-MA). The legislation—also known as the Butch Lewis Act—is intended to address issues of insolvency common to a significant number of multiemployer (union) defined benefit pension plans. The bill as proposed would do the following.

  • Establish a Pension Rehabilitation Administration within the Treasury Department, and a related trust fund to make loans to certain union pension plans that are in critical-and-declining status, or insolvent
  • Enable the Treasury Department to issue bonds to fund the loans described above
  • Appropriate to the Pension Benefit Guaranty Corporation (PBGC) funds for additional assistance that some plans could qualify for beyond the above-described loans

Other House committees with jurisdiction over this legislation, which are also expected to consider it at some point, include Ways and Means, and Appropriations. The bill has 168 co-sponsors. There is no equivalent Senate bill introduced at this time.


Legislation Would Give Pension Recipients Higher Priority in Bankruptcies

The Prioritizing Our Workers Act of 2019, companion bills introduced in the U.S. House of Representatives and the Senate by Rep. Tim Ryan (D-OH) and Sen. Joe Manchin (D-WV), would provide greater protection of workers’ defined benefit pension plan benefits when a sponsoring employer files for Chapter 11 bankruptcy protection.

Under a Chapter 11 proceeding, an enterprise is given temporary protection from creditors, and an agreement for eventual repayment of some or all financial obligations is typically negotiated. In general, wages owed to employees after the bankruptcy filing are given priority over unsecured claims of creditors, but promised pension benefits—which are commonly accrued before the bankruptcy event—are less protected. As a result, workers may find their pension benefits reduced or unavailable.

The Prioritizing Our Workers Act of 2019 would generally place pension obligations on a footing similar to wages owed to workers, thereby increasing the likelihood that these obligations would be met; but as a consequence might have the opposite effect for some creditors.

Rep. Ryan’s bill (H.R. 2619) has been referred to the House Committee on the Judiciary, while Sen. Manchin’s bill is currently unnumbered.


House Passes the SECURE Act

In a 417-3 vote, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which would significantly overhaul current legislation governing retirement plans. The bill, which is sponsored by Rep. Richard Neal (D-MA), was approved with broad bipartisan support. It must be passed by the Senate and signed by the President before it becomes law.

The legislation went through a few changes shortly before passage. The final bill removed certain provisions that had been included in previous versions which were intended to expand 529 plans to cover the cost of home schooling and attendance at private elementary, secondary, and religious schools. Additionally, the final version included language unrelated to retirement savings, which is intended to fix the 2017 Tax Cuts and Jobs Act provisions that affected military survivor benefits.

The SECURE Act includes the following provisions.

  • Enhance the ability of employers to participate in multiple employer plans (MEPs)
  • 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 nontuition 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) plan 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 the 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 IRS 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
  • Lower Pension Benefit Guaranty Corporation (PBGC) premiums for pension plans of cooperatives and charities
  • Reinstate, for one year, certain tax benefits for volunteer firefighters and emergency medical responders
  • Expand 529 plan distribution options to cover the costs of apprenticeships and allow for repayment up to $10,000 of student loan repayments for a student or his or her siblings
  • Require most nonspouse beneficiaries of defined contribution plans and IRAs to withdraw inherited balances within 10 years of the account owner’s death
  • 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
  • Modify rules relating to the taxation of unearned income of certain children

A nearly identical bill, the Retirement Enhancement and Savings Act (RESA) has been introduced in the U.S. Senate by Sen. Charles Grassley (R-IA) and Sen. Ron Wyden (D-OR). The Senate held hearings on the issue as recently as last week but has not yet scheduled a date to vote on its version of the legislation.

With apparent bipartisan support in both the House and Senate, there seems to be growing momentum that could result in 2019 being the year that significant retirement legislation is passed. Ascensus will continue to monitor the progress of RESA and its counterpart legislation in the House, the SECURE Act.

 

 


Bill for a Commission to Advise Congress on Retirement Issues Is Re-Introduced

Senators Todd Young (R-IN) and Cory Booker (D-NJ) have introduced the Commission on Retirement Security Act of 2019, legislation virtually identical to the 2018 bill these senators introduced. Its purpose is to create a commission that would advise Congress on issues pertaining to retirement security in the United States. The commission would be charged with reviewing existing private retirement benefit programs and drafting a report to Congress that could be useful to lawmakers in improving retirement security.

The following would be among the areas of focus for this commission.

  • Comprehensively review existing U.S. retirement savings vehicles, including the long-term transition from defined benefit pension plans to defined contribution plans
  • Take into consideration social and economic changes that have occurred in the U.S.
  • Examine alternative retirement programs in other countries that could have value or application in the U.S.

A schedule for consideration of the legislation has not been announced.