Anyone keeping count?
Senators Rob Portman, R-Ohio, and Ben Cardin, D-Maryland, introduced the “Retirement Security & Savings Act” on Wednesday, a broad set of reforms designed to help Americans save more for retirement and increase access to 401ks and other retirement plans.
The bill includes more than 50 provisions to increase savings in 401ks and IRAs, help improve coverage in the small employer market and among part-time workers, reduce barriers to lifetime income retirement options, and discontinues required minimum distributions.
The legislation builds on Portman and Cardin’s retirement previous reforms in 1996, 2001, and 2006 when they were members of the House.
The 2001 Portman-Cardin measure doubled contribution limits to IRAs, allowed portability between different types of qualified retirement plans, and created the ability for older workers to make catch-up contributions to 401ks and IRAs.
Since it became law, the politicos claim 401k and other defined contribution plan assets have increased by 179 percent and savings in IRAs, including rollovers from retirement plans, have more than tripled.
Provisions of the bill include:
Increasing Retirement Savings in IRAs and Workplace Plans
- The bill establishes a new automatic enrollment safe harbor for employers to meet nondiscrimination requirements. Under current law, the automatic deferral may be just three percent of salary for the employee’s first year. The provision would set the minimum default level of contributions at six percent in the first year and escalate it to 10 percent within five years.
- The measure makes the Saver’s Credit refundable and requires that the credit be contributed directly to a Roth account in a retirement plan or to a Roth IRA.
- The bill also allows taxpayers to claim the saver’s credit on their 1040-EZ and expand the group eligible for a 20 percent credit instead of a 10 percent credit.
- The bill allows employers to make matching contributions to retirement accounts of employees paying off qualified student loan debts.
- The bill expands retirement plans to include part-time employees working between 500 and 1,000 hours per year. Under current law, employers generally may exclude part-time employees (employees who work fewer than 1,000 hours per year) when providing a defined contribution plan to their employees. The bill requires employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or two consecutive years of service where the employee completes at least 500 hours of service.
Improving Access to Workplace Plans in the Small Employer Market
- The bill substantially increases the tax credit under current law for small businesses that adopt a new qualified retirement plan. Under current law, the credit cannot exceed $500; under the provision, small businesses could claim a credit as large as $5,000.
- The measure allows small businesses to self-correct all inadvertent plan violations under the IRS’ Employee Plans Compliance Resolution System (“EPCRS”) without a submission to the IRS, unless otherwise specified in regulations.
- The bill creates a new three-year, $500 tax credit for employer-sponsored retirement programs that automatically re-enroll plan participants at least every three years.
- The bill provides targeted relief from “top-heavy” rules in order to encourage employers to allow employees to start saving before the law requires it.
Reducing Costs and Other Barriers to Lifetime Income Retirement Options
- The bill more easily facilitates the sale of Qualifying Longevity Annuity Contracts (QLACs), a type of deferred annuities that begin payment at the end of an individual’s life expectancy, and a very inexpensive way for retirees to hedge the risk of outliving their savings.
- The bill eliminates significant current-law penalties and restrictions on obtaining guaranteed income for life.
Relief from Onerous Minimum Distribution Rules for Individuals
- The bill provides an exception from the required minimum distribution rules for individuals with $100,000 or less in aggregate retirement savings.
- The measure increases the age at which individuals are required to begin drawing down their retirement from an IRA or qualified plan. Under current law, the beginning age is 70 and a half; the bill increases the age to 72 in 2023 and 75 in 2030.
- The bill reduces the excise tax for failing to take required minimum distributions, lowering it from 50 percent of the shortfall owed to at most 25 percent, and to 10 percent or zero in other cases.
- The measure requires the Treasury Department to update the mortality tables that qualified plans must use in calculating annual required minimum distributions.
- The current tables are almost 20 years old and force individuals to withdraw their assets too quickly.