Tax Reform 2.0 Tackles Retirement Saving Issues
House Ways and Means Committee Chairman Kevin Brady (R-TX) has released the details of his tax reform 2.0 legislation, and it includes significant retirement savings changes, including multiple employer plans (MEPs).
On Sept. 10, Brady unveiled three bills
that seek to build on the Tax Cuts and Jobs Act by making certain individual and small business tax cuts permanent, simplifying existing rules to make it easier to save for retirement, and promoting new business innovation:
- H.R. 6760, the Protecting Family and Small Business Tax Cuts Act of 2018
- H.R. 6756, the American Innovation Act of 2018
Of particular interest to retirement plan professionals will be the 88-page H.R. 6757, which incorporates a number of the themes included in the bipartisan Retirement Savings and Enhancement Act (RESA), including MEPs. The new legislation generally mirrors RESA, though it’s not identical. It includes clarifying language on aggregation rules for MEPs, and also clarifies that employers are plan sponsors in the MEP for their participating employees.
Significantly, the general employer fiduciary responsibilities outlined in the bill mirror those in RESA, unlike those in the Small Business Employees Retirement Enhancement Act, introduced in July by Sen. Tom Cotton (R-AR), which excluded as fiduciaries employers that have 100 or fewer employees who earned at least $5,000 during the preceding year and that participate in a pooled employer plan (PEP) registered with the Labor Department. Of course, MEPs were also one of the areas President Trump directed the Labor and Treasury departments to consider expanding in an Executive Order signed on Aug. 31
. Other provisions in the Family Savings Act that are similar to language/focus to RESA include:
- Improvement of rules relating to election of safe harbor 401(k) status
- Portability of lifetime income investments
- Treatment of custodial accounts on termination of section 403(b) plans
- Allows employers to adopt a qualified plan up to due date of tax return
- Modification of nondiscrimination rules to protect older, longer service participants
- Clarification of retirement income account rules relating to church-controlled organizations
However, the bill in its current form diverges from RESA in that it does not provide a fiduciary safe harbor for the prudent selection of a retirement plan annuity — a point that could well come back into play in conference or by an amendment.
The legislation also:
- Provides for a contract with a third party to conduct a study of PBGC single-employer premiums
- Certain taxable non-tuition fellowship and stipend payments are treated as compensation for IRA purposes
- Repeals the maximum age for traditional IRA contributions
- Clarification of treatment of certain retirement plan contributions picked up by governmental employers for new or existing employees
- Provides an exemption from required minimum distribution rules for individuals with $50,000 or less in retirement savings
- Elective deferrals by members of the Ready Reserve of a reserve component of the Armed Forces
- Prohibits qualified employer plans from making loans through credit cards and other similar arrangements
The bill text also includes proposals that Brady outlined on Sept. 6:
- Creates a new “Universal Savings Account” with contributions capped at $2,500 (indexed) to offer (in the words of the bill’s author) “a fully flexible savings tool that families could use at any time.” This would require that the individual — or the parents of the individual, if a dependent — have at least $2,500 of income.
- Allows families to access their retirement accounts penalty-free for new child expenses capped at $7,500, with the ability to replenish those accounts in the future.
- Expands Section 529 education accounts to also be available to pay for apprenticeship fees, cover the cost of home schooling and help pay off student debt.
This is, of course, just the opening salvo in the so-called Tax Reform 2.0 debate. According to a statement by Brady, “The Family Savings Act focuses on helping families save more and earlier for the future by making it easier for businesses to offer retirement savings plans while ensuring workers can easily participate in these plans. This will help give our families the financial stability they need for whatever life throws their way.”
While a hearing advisory has not yet been released, Chairman Brady told CNBC that the Ways and Means Committee would begin consideration of the measures on Sept. 13.