In January and February of this year, Republicans and Democrats began discussing a new round of retirement savings legislation, as a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act signed into law as part of a year-end spending package on Dec. 20, 2019.
The new proposal (preliminarily dubbed “Retirement 2.0” or “SECURE Act 2.0”) would likely center around two bills previously introduced by House Ways and Means Chairman Richard Neal, D-MA:
- The Automatic Retirement Plan Act, which would require most small employers with 10 or more employees to maintain automatic contribution retirement plans for employees, and
- The Rehabilitation for Multiemployer Pensions Act (also known as the Butch Lewis Act), which would provide funds for 30-year loans and new financial assistance (in the form of grants) to financially troubled multiemployer pension plans.
Automatic Retirement Plan Act
Supporters of the Automatic Retirement Plan Act (which has yet to be reintroduced in this session of Congress) claim that the requirement to establish new plans will help fill the biggest gap in America’s retirement system: most workers who currently don’t have access to workplace plans work for smaller firms.
While workers without a company-backed savings plan can make tax-deductible contributions of up to $6,000 this year ($7,000 for individuals ages 50 or older) to a traditional individual retirement account (IRA) or a Roth IRA (to which an individual can make nondeductible contributions that are tax-free upon withdrawal), those tax benefits are limited based on income. By contrast, contributions to a workplace savings plan are tax-deferred (or tax-free withdrawals in the case of a Roth 401[k]), regardless of income. In addition, workers can contribute much higher amounts: up to $19,500 in 2020 to a 401(k)-type plan, plus an additional $6,500 catch-up contribution for those ages 50 and older.
The version of the bill that Rep. Neal introduced in December 2017 would exempt companies with fewer than 10 workers, those that have existed for less than three years, governments, and churches. It would have set up automatic payroll deductions at 6% of earnings at first, with an automatic escalator adding 1% annually until a maximum of 10% was taken out. For employees that don’t pick their own investment vehicles, plans would have been required to use default investments that met Labor Department regulations on the appropriate mix of asset preservation and capital appreciation based on workers’ age and risk tolerance, like target-date funds. Plans would have had to offer participants the option of taking up to 50% of their distributions as an annuity, or an insurance contract providing a steady stream of payments for life. The 2017 bill would also have provided tax credits worth up to $5,500 annually for five years to qualifying small businesses.
The bill as reintroduced will likely face opposition from some business groups, such as the US Chamber of Commerce, that have historically opposed new federal mandates, particularly on small businesses.
Rehabilitation for Multiemployer Pensions Act
While a fix for miners’ pensions (along with the SECURE Act) was added to the year-end spending bill, the multiemployer funding issue persists. In 2019, the benefits of 1.3 million workers and retirees in multiemployer plans were at risk due to severe underfunding. It is estimated that these underfunded plans could run out of money to pay benefits within the next 15 to 20 years. Both chambers of Congress have already taken up efforts to develop a bipartisan solution, including House passage of the Rehabilitation for Multiemployer Pensions Act. A recently released Republican proposal also aims to tackle the problem by carving out pension liabilities owed to participants who have been “orphaned” by employers that have gone out of business (and exited the plan without paying their full share of those liabilities), leaving a “healthy” pension behind, and by directing attention and assistance to the remainder of the plan from the Pension Benefit Guaranty Corporation (the current federal “backstop” for declining defined benefit pension plans).
Other bills which could be included in “Retirement 2.0”
Two other bills are waiting in the wings and may ultimately find their way into the final “Retirement 2.0” package.
The first, the Retirement Plan Simplification and Enhancement Act, also comes from Rep. Neal. Among other measures, it would set a new cap on automatic employee deferrals to 401(k) plans.
The second, the Retirement Security and Savings Act, was reintroduced in the Senate in May 2019 by Sen. Portman, R-OH and Sen. Cardin, D-MD. It includes more than 50 provisions designed to strengthen Americans’ retirement security and simplify some of the existing retirement rules. Among these are a new safe harbor rate for automatic default deferrals, treating student loan debt payments as elective deferrals for purposes of matching contributions, increasing the catch-up limit and expanding the saver’s credit.
Prospects for passage
While Rep. Neal indicated early on his plans to move this year on “Retirement 2.0” legislation (and there appears to be interest on both sides of the aisle to do so), the spate of coronavirus-related legislation in March of this year necessarily absorbed critical time and bandwidth on the congressional calendar. (See our recent blog on coronavirus-related legislation for an outline of the retirement-related provisions of the Coronavirus, Aid, Relief and Economic Security [CARES] Act signed into law on March 27, 2020.)
Moreover, the reality of 2020 as an election year means that time could increasingly become a factor, as well as whether there is still a desire among policymakers to work on a bipartisan basis to address additional retirement policy reforms. We’ll keep you posted.
BenefitsPRO, “’SECURE Act 2.0’ to move this year: Rep. Neal,” Melanie Waddell, Feb. 25, 2020
Roll Call, “Talks underway on ‘Retirement 2.0’ savings package,” Doug Sword, Feb. 24, 2020
NAPA Net, “Will the multiemployer funding crisis drive the next retirement bill?”, Ted Godbout, Feb. 21, 2020
PlanSponsor, “House committee advances bill to establish union pension lifeline program,” John Manganaro, July 10, 2019