Bipartisan Retirement Plan Bills Have a Shot at Passage

The SECURE Act and RESA focus on changes with broad political support

Stephen Miller, CEBS By Stephen Miller, CEBS April 4, 2019
Bipartisan Retirement Plan Bills Have a Shot at Passage

A key committee of the U.S. House of Representatives has approved and sent to the full House a bipartisan bill to promote greater savings through employer-sponsored retirement plans. The Senate isn't far behind with a similar measure.

H.R. 1994, the Setting Every Community Up for Retirement Enhancement (SECURE) Act—unanimously approved April 2 by the House Ways and Means Committee—incorporates several provisions from S. 972, the Retirement Enhancement and Savings Act (RESA), which has just been reintroduced in the Senate.

These bills are participant-focused, said John Lowell, an Atlanta-based partner with retirement plan advisory firm October Three. "While there are provisions that will appeal to plan sponsors, the driving forces appear to be ensuring retirement readiness in a 401(k)-only world," given the decline in defined benefit pensions.

"The House and Senate bills have many things in common, which is a good sign that the two chambers may be able to come to an agreement and send a final legislative product to the president's desk for his signature in the coming months," said Andrew Remo, director of legislative affairs at the American Retirement Association, which represents plan sponsors and service providers.

Bipartisan support "bodes well for much-needed legislation to advance America's retirement security," said Bob Melia, executive director of the Institutional Retirement Income Council, a trade association for the annuity industry.

Multiple-Employer Plans

The SECURE Act includes RESA's proposal to allow unrelated small employers to band together in a 401(k) multiple-employer plan (MEP), reducing costs and administrative duties that each employer would otherwise bear alone. Under current Department of Labor rules, only "closed" MEPs are allowed; participating employers must share common organizational relationships, such as being in the same industry and members of an established trade association.

Last October, the Labor Department issued a proposed rule that would allow open MEPs provided through an association retirement plan. The SECURE Act and RESA go further and would allow open MEPS for small businesses that don't share a common trade, industry or profession to be administered by what the legislation calls a "pooled plan provider," such as a financial services firm.

The bills would insulate companies in MEPs from penalties if other members violate fiduciary rules—for example, by failing to funnel employee contributions to the plan on schedule. The liability risk to the entire plan posed by "one bad apple" has been a major stumbling block for MEPs.

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

In-Plan Annuities

Both bills create a safe harbor that employers can use when choosing a group annuity to include as an investment within the 401(k) plan. In-plan annuities can give participants lifetime income during retirement. Employers who "are concerned about being sued for breach of fiduciary duties if the annuity provider they select faces problems years from now, and about what their responsibilities would be for ongoing monitoring and oversight of that provider" should be assured the legislation provides protections from these liabilities, said Dominic DeMatties, a partner with law firm Alston & Bird's employee benefits and executive compensation team in Washington, D.C.

When employees take another job or retire, portability of their in-plan annuity to another 401(k) plan or to an individual retirement account would be allowed. This change permits participants to preserve their annuity investments and avoid surrender charges and fees.

These provisions "will usher in an opportunity to provide more guaranteed income to the average American," Melia said.

The Society for Human Resource Management's 2018 Employee Benefits survey report found that 8 percent of HR professionals polled last year offered an in-plan annuity option at their organizations.

Default Savings Cap

To promote additional savings, both bills would allow automatic enrollment safe harbor plans to increase the cap on automatically increasing payroll contributions from 10 percent to 15 percent of an employee's paycheck.

Lowell called this change one of the most significant reforms in the bill, although, he said, "I wonder how many eligible employees would opt out" of an automatic deferral increase above 10 percent of their pay.

Other 401(k) Changes

The bills also would:

  • Require employees to include long-term part-time workers as participants in defined contribution plans, except in the case of collectively bargained plans. Eligible employees would include those who completed at least 500 hours of service for three consecutive years.
  • Increase the business tax credit for plan startup costs to make setting up retirement plans more affordable for small businesses. The tax credit would increase from the current cap of $500 up to $5,000 in certain circumstances.
  • Encourage small-business owners to design a plan with an automatic enrollment by providing a further $500 tax credit for three years for plans that add automatic enrollment of new hires.
  • Prohibit the distribution of plan loans through savings plan debit cards or similar arrangements so that plan loans are not easily available for routine or small purchases.
  • Provide penalty-free withdrawals from retirement plans for qualified birth or adoption expenses.
  • Require defined contribution plans to annually disclose to participants the monthly payments participants would receive if their total account balance were used to purchase an annuity for the participant and the participant's surviving spouse. The Secretary of Labor is directed to develop a model disclosure.

"The U.S. Government Accountability Office reports that 48 percent of older Americans have nothing saved for retirement—and the 'good news' was that it was down from 52 percent from three years prior," said Amy Ouellette, director of retirement services at 401(k) provider Betterment for Business. "No matter what way you look at it, action is needed to drive those figures down."

A major obstacle people face in saving for retirement, she noted, is "not having access to a 401(k) in the first place." Making it easier for small businesses to offer retirement plans, encouraging greater automatic enrollment and having benefits statements project lifetime income "is taking a big step forward in the right direction."

Relief for Frozen Pension Plans

Both the SECURE Act and RESA would address a long-standing issue affecting pension plans that are frozen to exclude new hires.

As part of the transition from defined benefit pensions to 401(k)-type defined contribution plans, "many employers have closed their traditional defined benefit plans to new employees but continue to allow existing employees to accrue benefits under the plan," DeMatties said. "Over time, the group of employees that continues to accrue benefits under the traditional defined benefit plan generally becomes older and higher paid, which frequently can result in difficulty satisfying the tax code's nondiscrimination requirements" that prohibit retirement plans from favoring high-income employees.

If certain conditions are met, the proposed bills "would modify these nondiscrimination rules to permit older, longer-service and generally higher-paid employees to continue to accrue benefits under a defined benefit plan, even though younger, shorter-service and generally lower-paid employees do not accrue these benefits," DeMatties noted.

Some Differences

Among the differences between the SECURE Act and RESA, the House bill would increase the age at which retirees with tax-deferred retirement accounts are required to start taking withdrawals, from age 70 1/2 to 72—a provision that is not in the Senate legislation. The SECURE Act would also allow 529 college savings plans to be used to repay student loans.

If the SECURE Act and RESA are passed by their respective chambers, Remo expects that differences would be worked out in a House-Senate conference committee, resulting in a final compromise bill.

Quick Passage Sought

Others are optimistic that once passed on the House floor, the SECURE Act will be sent to the Senate and reconciled with RESA before a Senate vote, after which the bill would be sent to President Trump to be signed into law.

Some supporters of the legislation hope to get the SECURE Act through the House in May and a reconciled SECURE Act/RESA bill through the Senate by August, reported 401k Specialist, a trade publication.

Another Legislative Approach

Separately, the Saving for the Future Act was introduced April 4 by Sens. Amy Klobuchar, D-Minn., and Christopher Coons, D-Del. The measure would require companies with 10 or more employees to contribute to workers' retirement plan accounts at least $0.50 for every employee hour worked. Businesses would receive tax credits for their contributions, and these credits would be funded by raising the corporate tax rate and the tax rate paid by wealthy households.

Because the bill targets the Republicans' 2017 tax cuts and was introduced in the Senate with no GOP co-sponsors, it is not expected to move forward. Whether it might draw Democratic support away from RESA is not yet clear.


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