Midterm elections reconfigured the power structure in Washington.
The newly formed Congress, which features divided chambers and lacks a 60-vote majority in the Senate, may have difficulty passing partisan legislation.
However, retirement plan legislation, which is a priority for both parties and the President, could make headway.
It’s likely the legislation that is presented during the 116th Congress will resemble that proposed by the 115th Congress, albeit with a Democratic majority in the House of Representatives.
Previous retirement proposals have focused on three areas: expanding access to workplace retirement savings plans, requiring universal retirement plan access in the private sector, and encouraging lifetime income options for participants in private sector plans.
The incoming chair of the House Ways and Means Committee, Representative Richard Neal, D-Mass., proposed two pieces of legislation during the last Congress related to improving retirement readiness and has established retirement savings as one of his top legislative priorities.
With that in mind, here are some particular pieces of legislation to keep an eye on in 2019.
Retirement Enhancement and Savings Act
The provisions that seem most likely to pass the new Congress are those contained in the Retirement Enhancement and Savings Act of 2018 (RESA). Re-introduced in March 2018, by now-retired Senator Orrin Hatch (R-UT) and Senator Ron Wyden (D-OR) in the Senate, and by a number of bipartisan Representatives in the House, RESA features a number of provisions aimed at increasing voluntary retirement savings. Among other things, RESA would:
- Allow for wider use of multiple employer plans (MEP);
- Repeal the maximum age for traditional IRA contributions;
- Increase financial incentives for small business that start new plans;
- Remove the cap on auto-enrollment and auto-escalation features.
RESA is widely viewed as likely to pass due to strong bipartisan support in the upcoming Congress.
Presidential Executive Order on Retirement Security
Recent action from the White House also signals that the current administration is serious about addressing the retirement crisis. On August 31, 2018, President Trump issued an Executive Order On Strengthening Retirement Security in America with the intent of expanding access to workplace retirement plans for American workers.
The order states that the government seeks “to expand access to workplace retirement plans for American workers,” and directs the Department of Labor to expand employer eligibility requirements to participate in open MEPs and review required minimum distribution rules.
The Department of Labor responded in October with a Notice of Proposed Rulemaking (NPRM) focused on issues related to Open MEPs. The Treasury also responded and indicated it would issue an NPRM in April 2019 that will address the “one-bad-apple” rule, which can disqualify an entire MEP because of issues with a single employer.
Retirement Plan Modernization Act
As part of the Economic Growth Tax Relief Reconciliation Act of 2001 (EGTRRA), ongoing retirement plans may distribute the balance of a former employee upon termination of employment if the employee’s plan balance does not exceed $5,000.
For distributions between $1,000 and $5,000, the plan sponsor is required to establish an IRA for the benefit of the former employee, unless the separated employee, in response to a notice from the plan sponsor, directs the plan sponsor to send the distribution directly to the separated employee or to another institution.
These IRAs are referred to as “automatic rollover IRAs.”
Introduced last year by a bipartisan group of Congressmen, the Retirement Plan Modernization Act would increase the $5,000 limit on mandatory distributions from retirement plans to $7,600, and index it to inflation moving forward. The last time the limit was raised was 1997, with the threshold moving from $3,500 to $5,000 as part of the Taxpayer Relief Act of 1997.
Retirement Security and Savings Act
Introduced in December by Senators Rob Portman (R-OH) and Ben Cardin (D-MD), the Retirement Security and Savings Act aims to increase retirement savings and access to 401(k)s and other retirement plans for Americans.
A comprehensive piece of bipartisan legislation with more than 50 provisions, the bill includes some of the same ideas found in RESA. It also includes a new automatic enrollment safe harbor that would increase the minimum default contribution level from 3% to 6% in the first year and escalate to 10% within five years.
Though unlikely to pass in its current state, some of the ideas in the Retirement Security and Savings Act may advance through the Senate if a broader retirement package is put together.
Automatic Retirement Plan Act
It’s also worth watching what happens with the Automatic Retirement Plan Act, which was proposed in December 2017 by Representative Neal, the new Chairman of the House Ways and Means Committee.
The Act would require all employers, with exceptions for small employers, to offer either a workplace retirement plan or a payroll deduction IRA with automatic enrollment.
Representative Neal is expected to introduce an updated version of the Act in the current Congress. With a Democratic majority on his side, Neal would likely have the ability to advance the bill through the House.
While it would almost certainly be defeated by a Republican Senate, the progress of the Automatic Retirement Plan Act bears monitoring as an indication of Democratic retirement policy to come.
Before retirement, Terry Dunne was the senior vice president and managing director of Retirement Services at Millennium Trust Company, LLC. Mr. Dunne has over 40 years of consulting experience in the financial services industry. He has written extensively on retirement planning, industry trends, technology, and legislation. Millennium Trust performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.
