Could further relief from retirement account required minimum distributions (RMDs) be a part of the next coronavirus economic stimulus package?
As President Donald Trump signed another $484 billion stimulus bill into law on Friday, largely aiding employers and hospitals under stress from the pandemic, lawmakers from both sides of the aisle were already looking ahead to the next round of economic relief.
That next package, with a tentative “CARES 2” moniker and expected sometime in mid-May, will likely focus primarily on aid for state and local governments, which Speaker of the House Nancy Pelosi has publicly made a priority. But it could also include further relief from required minimum distributions (RMDs), as Sen. Ben Cardin (D-MD) told an American Council for Capital Formation webcast audience Thursday that the a provision to “ease up” on RMDs could make its way into the package.
Cardin has long been on the forefront of federal retirement savings reform legislation, working alongside Sen. Rob Portman (R-OH) on the issue dating back to 1996, and very recently on the SECURE Act and an additional bill being considered called the Retirement Savings & Security Act (also referred to as Portman-Cardin).
During the webcast, Cardin was asked a question about the chances of the proposed Portman-Cardin retirement legislation being taken up in this Congress, an initiative that could certainly help given the massive withdrawals in 401k accounts due to the current economic crisis.
“Senator Portman and I are very much together on the next chapter of Portman-Cardin on pension reform to encourage more retirement savings in this country,” Cardin said during the webcast, before mentioning the possibility of RMD relief in the next stimulus package.
In response to the coronavirus, Cardin noted the provisions in the CARES Act dealing with RMD deferrals and making it easier to access 401k funds, but quickly added more can be done with RMDs without providing much in the way of details.
“We are suggesting that perhaps we should be doing more, and that is ease up on the required minimum distributions, so people can keep more money in their retirement,” Cardin said. “With the down market, you’re going to see that the long-term security is going to be much more challenging for people who retire so that should be something we may be able to get done in the stimulus bill in the next couple weeks. That’s something we should take a look at.”
Under the CARES Act, RMD rules for DC plans including 401k, 403b, 457b plans and IRAs are waived for calendar year 2020, providing relief to individuals who would otherwise be required to withdraw funds from their retirement accounts during the economic slowdown due to COVID-19.
For people that don’t need the withdrawals, removing the RMDs gives them a better shot at recouping losses from the crisis instead of locking them in.
While the SECURE Act, passed at the end of last year, increases the age for taking RMDs from 70½ to 72, Portman-Cardin seeks to raise the age to 75 by 2030 and also includes a broader set of reforms—57 specific provisions—designed to help more Americans save for their retirement.
Pension help could also make next bill
While a fifth stimulus bill is expected to feature billions (or even hundreds of billions) in aid for state and local governments, Pelosi has also said it should also include funding to protect U.S. elections and the U.S. Postal Service.
Infrastructure spending, hazard pay for essential workers like health care professionals and grocery store employees, and perhaps even aid for troubled union pension plans could also be included.
Democratic leaders said recently there is Republican support (including President Trump) for shoring up cash-strapped employer-sponsored pension programs, which Democrats tried and failed to have included in the CARES Act. Senate Minority Leader Chuck Schumer (D-NY) has said publicly the issue would likely come up for discussion again in the next round of stimulus package negotiations.
“On pensions I called President Trump and urged him to be for it and he was. The block there was [Senate Majority Leader] Mitch McConnell [R-KY] but there are a lot of Republican senators who want to help out on the pension issue,” Schumer told The Hill last week.
Pelosi, who has stated the next stimulus bill will start in the House after the previous two were negotiated and first approved by the Senate, has also said the next bill will distribute more relief to individuals, extend more generous jobless benefits into the fall, provide another round of direct payments to most people and help those who are laid off afford health insurance through COBRA.
The next bill could end up approaching or even exceeding the CARES Act’s $2.2 trillion tab, largely by funneling hundreds of billions to state and local governments.
Democrats tried to include additional funding for state and local governments in the most recent bill but were rebuffed by McConnell, who says he wants to pump the brakes on runaway deficit spending.
“I think it’s also time to begin to think about the amount of debt we’re adding to our country and the future impact of that,” McConnell told The Hill. “Let’s weigh this very carefully because the future of our country in terms of the amount of debt that we’re adding up is a matter of genuine concern.”
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