Several Bills are pending, each of which has passed the House Ways and Means Committee, and now reside with the Senate. These Bills are: Building on Reemployment Improvements to Deliver Good Employment for Workers Act HR 1759 (BRIDGE for Workers), the Setting Every Community Up for Retirement Enhancement Act J.R. 1994 (SECURE), and the Taxpayer First Act HR 1957. The Acts, as they emerge from the Senate, may have certain differences, although as the Bills currently are, there are several noteworthy changes aimed at expanding and preserving Retirement Plans’ savings, and improving tax administration:
Long discussed, expanding opportunities for multiple-employer Plans (MEP) is drawing closer. Former Regulation required “commonality”, other than a Controlled Group of Businesses, before various employers could band together and adopt a Qualified Retirement Plan. The proposed Legislation eliminates some of the barriers for establishing a MEP, including commonality and “bad apple” rule (all employers are responsible if one employer has certain Compliance violations).
Plans with Automatic Enrollment have been limited to a 10-percent cap for Elective Deferral Contributions. The Legislation proposes to change the cap to 15-percent, providing greater opportunity for participants to make Elective Deferral Contributions toward retirement savings.
Proposed Legislation eliminates the 401(k) Safe Harbor Notice Requirement, allows amendment to the non-elective status at anytime prior to 30-days before the end of the Plan Year, and allows amendments after that time, as long as the non-elective Contribution percent is increased to at 4-percent of Compensation, and the plan is amended no later than the last day for excess distributions (the close of the following Plan Year).
The credit for Plan start-up costs is intended to make it more affordable for small businesses to establish Retirement Plans. The proposal increases the credit to the greater of (1) $500.00, or (2) the lessor of $250.00 multiplied by the number of eligible non-highly compensated employees or $5,000.00. The credit applies for a maximum of 3-years.
Studies have shown that Automatic Enrollment (AE) has increased employee participation and retirement savings. The proposed Legislation creates a new tax credit of up to $500.00 for new Plans with AE, or to existing Plans that add AE through Amendment. This credit is in addition to the Plan start-up Credit mentioned above.
Currently, employers may elect to exclude part-time employees, provided the part-time employees work less than 1000-hours per year. The proposed Legislation will require employers to have dual Eligibility Requirements under which the employee must satisfy the one-year of Service rule (at least 1000-hours), or three consecutive years in which the employee worked at least 500-hours. A benefit to the employer is that employees eligible solely based on the new rule may be excluded from Compliance Testing for Non-Discrimination and Coverage, and from application of the Top-Heavy Rules.
The Required Minimum Distribution (RMD) rule regarding the age at which RMDs are to begin have been in place for almost 60-years, and the minimum age has not been adjusted according to increased life expectancy. The proposed Legislation increases the age from the current 70-1/2 to 72 years.
The Legislation also modifies the period in which the account with respect to a deceased Defined Contribution Plan participant or IRA account holder in RMD status must generally be distributed. The period is modified to the last day of the tenth calendar year following the death of the participant or account holder.
Formerly, a new Plan needed to be adopted, through signature, by the last day of the year for which the Plan was being established. The proposed Legislation is intended to extend the adoption date to the business’s Tax Return Due Date, plus extensions. The extended enactment date provides additional time for the employer to make the decision to adopt a Plan, while still providing an opportunity for participants to begin acquiring retirement savings in the earlier year.
The proposed Legislation allows for combining the financial and participant information into a consolidated Form 5500. This opportunity has benefits if multiple Plans are “large filers” because only one audit will be required, thereby spreading the audit fees across several Plan Sponsors. The disadvantage arises if several “small filer” Plans are combined and in total, an audit is now required. It is unclear if, after combining Plans, the Plans can disaggregate to avoid an audit.
The Legislation proposes excise penalty-free withdrawals from Retirement Plans for “qualified birth or adoption distributions”.
Stipends and non-tuition fellowship payments received by graduate and postdoctoral students have not been treated as Compensation and therefore cannot be used as a basis for IRA Contributions. The proposed Legislation allows such amounts to be taken into account for IRA Contributions purposes, which will allow students to begin retirement savings.
Similar to the RMD age noted above, previously, individuals who have attained age 70-1/2 have been prohibited to make Contributions to an IRA. Due to increasing age factors, this Contribution age limit is proposed to be removed.
While not commonplace, Plan Loans can be issued through credit cards (or similar). Doing so is thought to lead to small-scaled purchases, and defeat the purpose of saving for retirement. The Legislation proposes prohibiting such Plan Loan options.
Mandate that the Treasury issues guidance regarding custodial accounts upon the termination of a §403(b) Plan.
The proposed Legislation defines the individuals who may be covered by a Plan maintained by church controlled organizations.
Provide Pension funding relief for family-owner, non-publicly traded, independent newspapers, by increasing the interest rate to 8-percent, and expanding the amortization period from 7-years to 30-years, thereby reducing the annual amount required to be contributed to the Pension Plan.
The Legislation proposes to amend §§415(c) and 408(o) to allow tax exempt “difficulty of care” payments to be treated as Compensation for calculating Contribution limits to Defined Contribution Plans and IRAs.
The Secretary of Labor is directed to develop a model disclosure of lifetime monthly income for participants of Defined Contribution Plans.
Plan Sponsors are afforded Fiduciary Safe Harbor in the selection of a lifetime income provider, and protected from liability due to an insurer’s inability to meet it’s financial obligations to Plan participants and beneficiaries.
The Legislation establishes individualized rates for PBGC Premiums for CSES Plans, rather than the current funding rules which are consistent with Single-Employer and Multiemployer Pension Plans.
The Legislation increases Penalties for failure to file certain Retirement Plan Returns, in an effort to encourage timely and accurate filing of returns and statements.
Allowing participants of Defined Contribution, §403(b) Plans or Governmental §457(b) Plans to make a direct Trustee to Trustee transfer to another Employer sponsored Plan or an IRA, of lifetime income investments, if the lifetime income investment is no longer an option under the current Plan. This change will permit participants to retain the lifetime income investments, and to avoid surrender charges and fees.
There is a one-year reinstatement and increase of $50.00 of the exclusion for State or local tax benefits and reimbursement payments for volunteer emergency response organizations.
Modification of the nondiscrimination rules will allow existing participants to continue to accrue benefits in a closed Plan, protecting benefits for older, longer-termed employees as they approach retirement.
The Legislation expands the §529 Education Savings Accounts to cover apprenticeships, homeschooling, qualified student loan repayments (limited to $10,000.00), and private elementary, secondary or religious schools.
The IRS is able to share returns and returns’ information with the U.S. Customs and Border Protection for the purpose of administering and collecting heavy vehicle use tax.
As noted in the introduction, how the Bills look after emerging from the Senate may be different, based on additional Amendments or changes to the current status.