House Ways and Means Committee leaders introduced a long-awaited bipartisan collection of retirement savings incentives on Tuesday, building off another sweeping package enacted late last year.
The new proposal, intended to lay the groundwork for action next year, would among other things expand and enhance the saver’s credit for lower-income households, and increase the age for required minimum distributions from 401(k)s and other tax-favored plans from 72 to 75 years of age.
In one long-sought change, the bill would allow employees to count student loan repayments toward their employers’ matching contribution for a retirement account. The IRS in 2018 ruled that health care products company Abbott Laboratories could offer such a plan to its employees, which the legislation would codify and incentivize other companies to do the same.
Other provisions would require employers offering a new retirement plan to automatically enroll eligible employees; boost limits for catch-up contributions to retirement plans by workers who have reached age 50 from $6,500 a year to $10,000; and enhance an existing tax credit for small employers starting a workplace plan sweetened by a new tax credit of up to $1,000 per employee.
House Ways and Means Chairman Richard E. Neal often points to statistics showing 55 million Americans have no access to a workplace retirement plan. There are an estimated 10,000 people each day who become eligible for Social Security, and many will face a retirement dependent mainly or wholly on Social Security’s average benefit of $1,514 a month.
“COVID-19 has only exacerbated our nation’s existing retirement crisis, further compromising Americans’ long-term financial security,” Neal, D-Mass., said in a joint release with the panel’s ranking member, Kevin Brady, R-Texas. “Our legislation will make it easier for folks to save, protect Americans’ retirement accounts, and give workers more peace of mind as they plan for the future,” Brady said.
Never mind the politics
Releasing a large, bipartisan bill in the rancorous week before an election makes for interesting timing. Both Neal and Brady confirmed in late September that they had reached broad agreement on a package, though staff noted that there were still details to be ironed out.
Brady had said he expected the bill could be concluded by late October. Neal suggested it could be done before the election, particularly if members remained engaged in negotiating a coronavirus relief deal with the White House.
While it’s possible that the measure could be tacked on to a lame-duck legislative vehicle, like a COVID-19 package or omnibus spending bill, it seems unlikely at this point given the retirement proposal has only now arrived on the scene.
That’s in contrast to a retirement savings plan that Neal and Brady collaborated on last year that sailed through the House on a 417-3 vote in May 2019. That bill floundered for months in the Senate due to various “holds,” but congressional leaders overcame those objections by rolling the measure into a year-end spending bill.
Last year’s retirement package included two dozen provisions. The highest-cost measure, at $8.9 billion over 10 years, was increasing the age for required minimum distributions from 401(k)-type plans from 70 1/2 to 72 years of age.
The prior age limit had been unchanged since 1986, and with increased life expectancy and longer working years, lawmakers decided it was prudent to allow savers to let their accounts build up larger balances. Neal’s and Brady’s new bill would boost the so-called RMD another three years, to 75.
Another provision in the 2019 law relaxed rules for small companies to band together to form multiple employer plans even if they don’t share a common industry. The American Council of Life Insurers estimated those incentives would bring access to a workplace plan to 600,000 to 700,000 workers initially. The new bill expands an existing tax credit and adds a new one to defray the start-up costs for small businesses launching new plans.
Many of the provisions in what the authors have dubbed “Retirement 2.0” draw heavily from two sources: a package Neal introduced in the 115th Congress and a current bill backed by Sens. Rob Portman, R-Ohio, and Benjamin L. Cardin, D-Md. The Portman-Cardin bill, as it is known, was first introduced in the 115th Congress.
One thing the new bill will not include is Neal’s favored retirement savings solution, a group of provisions centered on a mandate for businesses with more than 10 employees to offer a workplace retirement savings plan.
The American Council of Life Insurers, one of the industry backers of that measure, estimates the mandate would add 22 million Americans to workplace plans. Lobbyists following retirement issues say they expect Neal will pursue that legislation next year if Democratic presidential nominee Joe Biden wins the White House.
Saver’s credit
The bill’s expansion of the so-called saver’s credit offers a meaningful incentive for lower-income households struggling to build nest eggs. Neal and Brady are proposing a flat 50 percent credit, capped at $1,500, for retirement plan contributions. The credit is currently tiered at 10 percent, 20 percent and 50 percent based on income, capped at $1,000 per saver.
Other provisions in the bill would:
Allow employers who offer 403(b) plans, which cater to public school teachers and tax-exempt organizations, to band together to share costs.
Permit small employers who join a multiple employer plan to get startup cost tax credits for three years, fixing a glitch that would limit a small employer to only one year of tax credits if it joined a so-called MEP that was two years old.
Allow certain 403(b) plans to invest in collective investment trusts in which plans pool their money to better diversify their portfolios.
Provide a tax credit to small employers if they make newly hired spouses of military members eligible for retirement plan participation within two months, make them eligible for matching contributions available for those with two years of work, and ensure they are immediately 100 percent vested in the plan.
Allow employers to provide small immediate incentives, such as gift cards, to encourage employees to contribute to their 401(k) plan.
