Harkin’s 'USA Retirement Funds' May Get a Second Chance
Retiring Sen. Tom Harkin’s (D-IA) signature piece of retirement legislation, the USA Retirement Funds Act, has found a champion to carry it into the next Congress.
Harkin, the outgoing chairman of the Senate Health, Labor, Education and Pensions (HELP) Committee, might have been pleased to see that on Dec. 10 Rep. Matt Cartwright (D-PA) introduced H.R. 5828, a companion bill to Harkin’s S. 1979. Cartwright’s action means that Harkin’s proposal could live on, at least in the House of Representatives, even if no one chooses to take it on in the Senate because while Harkin is retiring, Cartwright is coming back for the 114th Congress.
The USA Retirement Funds Act requires employers with 10 or more employees to offer a retirement savings plan for their eligible employees, with the “USA Retirement Funds” plan serving as the default arrangement. Employers with existing retirement plan arrangements do not automatically enroll employees and provide a lifetime income distribution option in their current plan, would be required to either change their plan to meet those design requirements or to add the USA Retirement Funds arrangement on top of what the employer is already doing. Additionally, while S. 1979 also contained reforms to various aspects of the existing DC and DB systems, H.R. 5828 solely focuses on the USA Retirement Funds arrangement contained in Title I of S. 1979.
Still, the new H.R. 5828 fills in some important details about the amounts individuals can contribute to, and tax treatment of, the USA Retirement Funds. Such details purposefully were omitted from S. 1979 in order to avoid having the bill being referred to a committee outside of Harkin’s purview.
Cartwright’s bill allows participants in the USA Retirement Funds arrangement to contribute up to $15,000 per year (with indexing) into the plan and employers could, but are not required to, contribute uniformly among employees up to $5,000 per year into the plan. The USA Retirement Funds plan automatically enrolls employees at an initial default contribution rate of 3% of pay that auto-escalates up to 6% of pay. Even if an employee chooses to opt out of contributing, he or she is automatically re-enrolled after a two-year period.
Participants will be able to deduct contributions to the USA Retirement Funds accounts from their income taxes and the earnings in the accounts will be exempt from income taxes (until withdrawn). The current tax rules for rollovers to and from existing retirement accounts would also apply to the USA Retirement Fund accounts. However, other than an annuitized benefit distribution, there are significant limits on the amounts of money that can be distributed from the accounts; participants younger than age 60 cannot withdraw any money from the account (they can only rollover no more than $5,500 to another qualified plan), while those aged 60 or older can elect to take a one-time lump-sum of $10,000 or 50% of his or her total benefit if the participant “has sufficient retirement income apart” from the plan or is “facing a substantial hardship.” Any distributions from the accounts are includible in an individual’s gross income.
As the 114th Congress begins next month, the ASPPA GAC team will keep you closely appraised of any new retirement policy initiatives, including a reboot of these USA Retirement Funds.
Andrew Remo is ASPPA’s Congressional Affairs Manager.