Legislative updates

David Musto Urges Congress to Maintain Momentum, Pass SECURE Act

Ascensus President David Musto contributed a byline to PLANADVISER in which he encourages political influencers to look beyond next year’s election and consider our nation’s outlook in 2044. Based on a retirement age of 67,  the average American worker is expected to retire in 2044. Will these workers be able to retire comfortably, having accumulated adequate savings? Musto highlights how the passage of the SECURE Act, with its provisions incentivizing retirement plan creation and increasing plan accessibility, might help boost their chances. “Kudos to Congress for working together to propose meaningful and much-needed retirement reform legislation. We’re almost over the hurdle and on our way to a brighter retirement future for all Americans,” he concludes.

IRS Proposed Regulations to Provide Additional HRA Guidance

Recently published in the Federal Register are IRS proposed regulations to help clarify the application of the employer-shared responsibility provisions and certain nondiscrimination rules pertaining to health reimbursement arrangements (HRAs) and other account-based group health plans that are integrated with individual health coverage or Medicare. The proposed regulations provide certain safe harbors with respect to the individual coverage HRA provisions. The IRS hopes these proposed regulations will spur adoption of individual coverage HRAs by employers.

The IRS proposes adding a location-based safe harbor to Internal Revenue Code Section (IRC Sec.) 4980H, Employer Shared Responsibility Provisions, which can be relied upon when determining affordability to its full-time employees (and their dependents) by an applicable large employer (ALE), who is defined as having an average of 50 or more full-time employees during the preceding calendar year. Under this safe harbor, an ALE would be allowed to use the lowest cost silver plan for self-only coverage offered through the Exchange in the rating area in which the employee’s primary site of employment is located, instead of the lowest cost silver plan in the rating area in which the employee resides. This safe harbor will help alleviate employer burden that could result from requiring that affordability be based on each employee’s place of residence, as employees may change residence locations from time to time, and maintaining up-to-date records may be difficult.

For purposes of this location safe harbor, the proposed regulations provide that an employee’s primary site of employment generally is the location at which the employer reasonably expects the employee to perform services on the first day of the plan year (or on the first day the individual coverage HRA may take effect, for an employee who is not eligible for the individual coverage HRA on the first day of the plan year). The employee’s primary site of employment is treated as changing if the location at which the employee performs services changes and the employer expects the change to be permanent.

The proposed regulations do not provide an age-based safe harbor under IRC Sec. 4980H for the age used to determine the premium of an employee’s affordability plan. Rather, the affordability needs to be based on each employee’s age. The IRS acknowledges that this can be burdensome to employers and is seeking comments on the administrative issues this may raise, as well as on safe harbors that would ease these burdens.

The proposed regulations also provide a safe harbor for the requirement to provide nondiscriminatory benefits under Treasury Regulation 1.105-11(c)(3)(i). This safe harbor states that an individual coverage HRA will not be treated as failing the aforementioned nondiscrimination requirements solely due to the benefits varying based on age—so long as the individual coverage HRA satisfies the age variation exemption under the same terms requirement (Treasury Regulation 54.9802-4(c)(3)(iii)(B)). However, this safe harbor does not automatically satisfy the prohibition on nondiscriminatory plan operation as a whole.


The proposed regulations under IRC Sec. 4980H are proposed to apply for periods beginning after December 31, 2019, and the proposed regulations under IRC Sec. 105(h) are proposed to apply for plan years after December 31, 2019.

The Treasury Department and the IRS are seeking public comments on these proposed regulations, which need to be submitted by December 29, 2019. Proposed regulations by the IRS generally may be relied upon by taxpayers in their proposed form.

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

PBGC Proposed Regulations to Clarify Defined Benefit Plan Guidance

The Pension Benefits Guaranty Corporation (PBGC) issued proposed regulations for the allocation of assets in defined benefit plans and for distributions from terminated plans. The changes clarify certain portions of the existing regulations, and formalize policies involving payments of lump sum and partial benefit distributions, changes to forms of benefits, and valuation of plan assets. PBGC will accept public comments through November 29, 2019.

These proposed regulations include the following changes.

  • Clarify that PBGC’s rules on lump-sum payment are unaffected by election of a lump-sum distribution before plan termination. PBGC does not pay benefits in a lump sum except in certain limited circumstances
  • Clarify that a de minimis benefit under the regulations is linked to the definition found in ERISA 203(e)(1), rather than a fixed amount of $5,000
  • Clarify that a de minimis benefit of a participant who dies after plan termination will be paid as an amount due a decedent, not as a qualified pre-retirement survivor annuity
  • Clarify that benefits will be paid to estates only as lump sums
  • Clarify that accumulated mandatory employee contributions may not be withdrawn if benefits are in pay status when a plan becomes trusteed by PBGC
  • Clarify that the form of benefit in pay status when a plan becomes trusteed by PBGC will not be changed
  • Clarify that pre-trusteeship partial distributions are considered in determining benefits
  • Require that fair market value be used for purposes of valuing assets to be allocated to participants’ benefits and in determining employer liability and net worth. The current regulations do not specify this requirement.

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

Senator Introduces “Automatic IRA Act of 2019”

Congress may be officially in recess, but bills continue to appear during the state and district work period for senators and representatives. Sen. Sheldon Whitehouse (D-RI) has introduced the Automatic IRA Act of 2019 (S. 2370). The legislation would mandate that most employers that do not offer their employees another type of retirement plan, establish an automatic enrollment, payroll deduction program with contributions withheld from employee pay and contributed to an IRA or retirement bond. The legislation is intended to address the lack of a workplace retirement savings program for many private sector employees. Estimates vary, but suggest that between 33 and 40 percent of this workforce has no workplace plan.

Much more comprehensive retirement legislation has already been passed this year by the U.S. House of Representatives—the Setting Every Community Up for Retirement Security (SECURE) Act—and is pending in the Senate. Nevertheless, this legislation too will be monitored when Congress returns in September for the remainder of the 2019 session.


In many respects, S. 2370 resembles automatic enrollment IRA legislation introduced in several prior sessions of Congress by fellow Democrat Richard Neal (D-MA), the House Ways and Means Committee Chairman. It contains the following provisions.

  • Most employers that do not offer a retirement plan, and had more than 10 employees earning at least $5,000 in the preceding calendar year, would be required to offer a “qualifying automatic IRA arrangement.” Also exempt would be certain new businesses, government entities, and churches.
  • Employers with existing retirement plans that are frozen, have had no contributions for three plan years, or provide only discretionary contributions, would not be exempt by virtue of maintaining such plans.
  • In general, employers that are required to participate in a qualifying state-facilitated retirement program for private sector workers would not be required to establish this federal automatic IRA plan.
  • The employees of multi-state employers would be covered under the rules of respective qualifying state-facilitated programs, or under the federal program in the case of a state with no such program. Such multi-state employers could instead irrevocably elect to have their employees in all states covered under the federal program.
  • Qualifying state programs could be multi-state consortiums.
  • As an alternative to automatically enrolling all eligible employees, an employer could request affirmative elections to contribute, but automatically enroll those who do not make an election.
  • Certain employees need not be covered under such an arrangement, including those under age 18, those who have worked less than three (3) months for the employer, certain collectively-bargained or nonresident alien employees, and—in the case of certain employers that operate an exempting plan—employees that have not yet met eligibility requirements to participate in that employer’s 403(b), SEP, or SIMPLE IRA plan.
  • A $100 penalty would be imposed on a covered employer for each otherwise eligible employee not enrolled, unless due to reasonable cause and corrected within 90 days.
  • Amounts withheld and contributed under the automatic IRA program would be at a rate of three percent of compensation, or other initial percentage as specified in future regulations by the Secretary of the Treasury, but not less than two percent or greater than six percent.
  • Amounts withheld would be invested in a Roth IRA or Traditional IRA; Roth IRA unless otherwise elected.
  • The Secretary of the Treasury may issue regulations providing for automatic deferral increases.
  • Automatically withheld amounts would be required to be placed in certain classes of investments, including target date or life cycle funds, principal preservation funds, guaranteed lifetime income investments, a qualifying retirement bond, or “certain other funds determined by the Secretary.”
  • Such automatic IRA arrangements would not be considered ERISA-governed pension plans if the Act’s provisions are met.
  • Employees who elect-out of the arrangement and have automatic IRA contributions distributed to them within 90 days would not be subject to the 10 percent early distribution penalty tax.
  • Automatic IRA contributions would be required to be remitted by the last day of the month following the month of withholding, or if later, by a deadline prescribed under Treasury regulations, but in no case later than the deadline for income tax withholding for the period. Fiduciary liability would apply for failure to meet this requirement.
  • Notice and election period requirements would apply, generally including notification at least 30 days before the beginning of a year, or 30 days before an employee becomes eligible.
  • An annual account statement would be required, much like all IRAs.
  • In general, all IRA rules would apply.
  • Small employers (100 or fewer employees) could be eligible for a tax credit for maintaining an automatic enrollment IRA arrangement for up to six years; to a maximum of $750 for the first year, and a maximum of $500 for the following years.
  • The small employer retirement plan start-up credit would increase from a current maximum of $500 per year to a maximum of $5,000.
  • Any state laws in conflict with H.R. 2035’s provisions would be preempted.
  • The effective date, in general, would be 2021 and later years.



Congressmen Introduce “IRA Preservation Act of 2019”

Although members of the House of Representatives have officially begun their annual August recess, among bills that have recently been introduced and referred to committee is H.R. 4117, the “IRA Preservation Act of 2019.” Its chief co-sponsors are Reps. Ron Kind (D-WI) and Mike Kelly (R-PA). The bill’s main thrust is expanding the IRS Employee Plans Compliance Resolution System (EPCRS) to cover certain errors under individual retirement plans, and providing for reduced penalties for certain self-corrections.

The bill has been referred to the House Ways and Means Committee.  The House of Representatives’ 2019 session resumes on September 9.

Key provisions of H.R. 4117—based on bill text provided by Rep. Kind’s office—include the following.

  • Require the Treasury Department to provide public education materials on IRA contribution and deduction limits, rollovers, required minimum distributions (RMDs), prohibited transactions, the 10 percent early distribution excise tax, and common IRA errors.
  • Reduce the IRA excess contribution penalty from six percent to three percent if corrected within a specified time window.
  • Reduce the penalty for failure to fully distribute an RMD from 50 percent to 10 percent of the undistributed amount if corrected within a specified time window (no reference is made to the existing procedure by which a full waiver of this penalty can be obtained).
  • Exempt earnings withdrawn in a timely IRA excess contribution correction from the 10 percent excise tax on early distributions (which generally applies to those under age 59½)
  • Eliminate the IRA prohibited transaction (PT) consequence of complete IRA disqualification; H.R. 4117 would apply the same rule to HSA, Archer MSA, and Coverdell ESA PTs.
  • Liability for an IRA, HSA, MSA, or ESA PT would be the general 15 percent (primary) and 100 percent (secondary) tax on the PT amount, unless the infraction is a pledging of assets within the account, in which case—while no excise tax—the pledged portion of the account would be deemed distributed and subject to normal taxation consequences.
  • A three-year statute of limitations on PT tax liability would apply.
  • Expand the IRS’s EPCRS program to allow IRA custodians, trustees, and issuers to self-correct errors “for which the owner of an IRA was not at fault;” to include, “but not limited to,” failure to complete a rollover within 60 days, and allow indirect rollover by a nonspouse beneficiary who had reason to believe that due to service provider error, an indirect rollover was permissible.
  • Permit self-correction of “inadvertent” RMD failures in retirement plans (those subject to EPCRS) and IRAs—presuming the existence of practices and procedures designed to prevent such failure—within 180 days; for an IRA owner, “inadvertent” to mean “due to reasonable cause.”
  • The effective date, in general, is as of the date of enactment, with transition provisions; the education elements required of the Treasury Department are to occur “as soon as reasonably practicable after the enactment,” but no later than one year following the date of enactment.



House Passes Union Pension Rescue Bill, Senate Passage Considered Unlikely

The House of Representatives has passed the Rehabilitation for Multiemployer Pensions Act (H.R. 397), introduced in January 2019 by House Ways and Means Committee Chairman Richard Neal (D-MA). The bill passed by a 264-169 margin, with most of its support coming from Democrats. A Senate companion bill has been introduced by lead sponsor Sen. Sherrod Brown (D-OH).

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

Passage in the Republican-controlled Senate—where it is being called a bailout for badly managed pension plans—is considered unlikely.


House Passes Legislation to Repeal Cadillac Tax

The U.S. House of Representatives has overwhelmingly passed the Middle Class Health Benefits Tax Repeal Act of 2019 (H.R. 748), which eliminates the so-called “Cadillac tax” element of the Patient Protection and Affordable Care Act—often referred to simply as the Affordable Care Act, or ACA.

The Cadillac tax was intended to fund certain benefits provided by ACA, and—as some economists claimed it could—exert downward pressure on rising healthcare costs. Application of this tax—40 percent on the value of healthcare benefits exceeding specified thresholds—has been delayed twice by Congress.

The Cadillac tax was to apply to what were claimed to be the most generous and expensive employer-provided healthcare plans. Opponents contended, however, that, in operation, it would have been levied on employer-provided health plans offered to many middle-class workers, and adversely affect employer incentives to offer health benefits. Notably, health benefits included in the calculation to determine application of the Cadillac tax included employer-provided health savings account (HSA) and health reimbursement arrangement (HRA) benefits.

While the 419-6 vote in the House is an indication of broad bipartisan support for repeal of the Cadillac tax, it is unclear at this time when—or whether—the legislation will be taken up in the U.S. Senate in the limited time remaining in the 2019 session of Congress. Repeal cannot occur without the Senate and House passing identical legislation, enacted with President Trump’s signature.

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.