Sweeping retirement legislation appears to be on the way. With more than one-third of private-sector employees lacking access to retirement plans, there is strong bipartisan support for action to make plans more accessible and enhance features of 401(k) plans.
Relaxed requirements for
multiple employer plans and legal authority for pooled employer plans are the most prominently featured attractions of the
Family Savings Act of 2018, as well as many of the dozen or so other retirement bills that have been introduced recently. MEPs and PEPs (a new version of MEPs for unrelated businesses) tackle the problem of inadequate access to retirement plans head-on and are a lock to be included in any final retirement reform that is passed.
Beyond MEPs and PEPs, there are a slew of provisions that may find their way into the current reform effort. Many of these proposals trace back to the Retirement Enhancement and Savings Act, which
passed the Senate Finance Committee in a unanimous vote two years ago and has been reintroduced in both congressional chambers.
Without getting too much into the weeds, here are some of the more interesting proposals in the various retirement reform bills that could eventually be adopted in final legislation:
• Extend plan coverage to part-time employees who work at least 500 hours annually (instead of the typical current threshold of 1,000 hours).
• Encourage saving for retirement by removing the 10% cap on auto-escalation of employee deferrals.
• Increase tax credits for small businesses setting up plans for the first time.
• Create an emergency savings fund (or "rainy day" account) option to set aside money up to $10,000 through payroll deductions, making "leakage" from qualified plans less likely.
• Provide portability of lifetime income investments to preserve tax-free payments from qualified investments and annuities.
• Raise the cap on contributions to a qualified longevity annuity contract, or QLAC, from $125,000 to $200,000.
• Repeal the prohibition on contributions to a traditional IRA after age 70½.
• Raise or repeal the 70½ age marker for beginning required minimum distributions.
• Exempt savers with less than $50,000 in qualified plan accounts and IRAs from
required minimum distribution rules.
While federal legislation around automatic enrollment, payroll-deduction IRAs — or "auto-IRAs" — withered on the vine during the Obama administration, the GOP is more receptive to the concept now that a half-dozen state legislatures have moved forward with their own auto-IRA programs, which could create a patchwork of new state pension programs competing with ERISA plans.
To date, California, Connecticut, Illinois, Maryland, Oregon and the city of Seattle are developing mandatory auto-IRA programs (with employee opt-outs) to plug the gap for the estimated one-third of employees without access to workplace plans. The Automatic IRA Act of 2017 would require businesses that don't have qualified retirement plans, have been in existence for at least one year and have 10 or more employees (with some exceptions) to automatically enroll their employees in a payroll-deduction IRA.
Adding impetus to the legislative activity on Capitol Hill, President Donald J. Trump signed an executive order on Aug. 31 on "Strengthening Retirement Security in America."
The order requires the departments of Labor and the Treasury to consider ways to encourage employer access to MEPs, allow electronic delivery of plan documents and update mortality tables, a move that conceivably could raise the age for required distributions from IRAs and lower the required withdrawal amounts.
Even though Mr. Trump's executive order directs exploration rather than action on specific measures, it signals important support for retirement plan reform. The timing for final action by Congress is uncertain, but this fall seems most likely.
After the November election, a lame-duck Congress will face less political pressure to vote along partisan lines. If many of the proposals mentioned here are included in final legislation, it would be the first major retirement-focused bill enacted into law in 12 years, since the Pension Protection Act of 2006.
Retirement advisers should pay close attention to what's happening in Washington. The retirement landscape is likely to be transformed in important ways that will provide opportunities to open new plans, especially for small businesses, and help existing plans and plan participants boost retirement savings.
Blaine F. Aikin is executive chairman of fi360 Inc.
