An array of retirement reforms unanimously passed April 2 by the House Ways and Means Committee would offer nondiscrimination testing relief to closed pension plans, promote defined contribution (DC) multiple-employer plans, seek to spur 401(k) savings, and encourage lifetime income options in DC plans, among many other proposals.
The Setting Every Community Up For Retirement Enhancement (SECURE) Act of 2019 (HR 1994) blends provisions from the House version (HR 1007) of the Retirement Enhancement and Savings Act (RESA) and two bills from prior years — the Family Savings Act of 2018 (HR 6757) and the Retirement Plan Simplification and Enhancement Act of 2017 (HR 4524). However, the SECURE Act includes some new proposals as well.
In a letter to committee leaders, Mercer President and CEO Martine Ferland commended lawmakers for advancing the legislation and called it “a major step forward in helping more Americans to retire with confidence.”
Closed plan testing relief. The bill includes permanent nondiscrimination testing relief for closed defined benefit (DB) plans and significantly broadens the temporary relief in IRS Notice 2018-69. Among other changes, the bill would:
If elected by the plan sponsor, the relief could apply to plan years beginning after Dec. 31, 2013.
Open MEPs. Employers of all sizes could join together to create more affordable DC plans through "open" multiple-employer plans (MEPs) using a "pooled plan provider." A pooled plan provider is a person designated as the plan administrator and named fiduciary in the plan document who is responsible for performing all administrative duties. Individuals would have to register with the IRS (and acknowledge in writing their plan administrator and fiduciary status) before serving as pooled plan providers. They also would have to ensure that everyone handling plan assets or serving as fiduciaries are bonded as required under ERISA.
Other changes would eliminate two current rules for MEPs:
More time to retroactively adopt retirement plans. The bill would give employers of all sizes more time to retroactively adopt a new stock bonus, pension, profit-sharing or annuity plan — but not a 401(k) plan. The deadline to adopt one of those plans would be the extended due date of the employer’s federal income tax return for the year in which the plan becomes effective. Employers meeting that deadline could treat the plan as having been adopted as of the last day of that tax year.
Updating safe harbor DC plan rules. The bill would make major changes to existing safe harbor rules for DC plans:
Reduced PBGC premiums for CSEC plans. PBGC premiums for cooperative and small-employer charity (CSEC) plans would be rolled back to $19 per participant for flat-rate premiums and $9 per $1,000 of unfunded vested benefits for variable-rate premiums.
Lifetime income encouraged in DC plans. Several reforms in the bill aim to encourage more lifetime income options in DC plans:
Converting 403(b) custodial accounts into IRAs. If an employer terminates a 403(b) plan with amounts held in a custodial account, those accounts could be distributed in kind to each participant or beneficiary of the plan. The distributed accounts would receive 403(b) treatment until the amounts are actually paid to the participant or beneficiary.
Plan loans via credit cards barred. The bill would prohibit plans from making participant loans via credit cards or similar arrangements.
Expanded coverage of part-time workers. Sponsors of noncollectively bargained 401(k) plans would have to let part-time workers voluntarily contribute to the plan if they have completed at least 500 hours of service a year for three consecutive years. Employers wouldn’t need to make nonelective contributions for these workers or match their contributions. Employers could exclude these employees from nondiscrimination testing and would not have to provide them with top-heavy minimum benefits.
Penalty-free withdrawals for birth or adoption of a child. Individuals could take up to $5,000 as a penalty-free early withdrawal from their qualified retirement plan savings to help pay childbirth or adoption expenses — with repayment permitted at a later date.
Consolidated Form 5500 for similar plans. The IRS and DOL would have to implement a consolidated Form 5500 for similar defined contributions plans. Plans eligible for consolidated filing must have the same: trustee, named fiduciary (or named fiduciaries), administrator, and plan year and must provide the same investments or investment options to participants and beneficiaries. The group could include a DC plan not subject to Title I of ERISA — such as a governmental or church plan — if the same person carries out each specified function for all plans in the consolidated filing.
Pension funding relief for community newspaper plans. The bill offers pension funding relief for community newspaper plan sponsors by increasing the interest rate to calculate those funding obligations to 8% and extending the period for amortizing any shortfall from seven to 30 years. The relief would only be available to plans in which no participants received an accrued benefit increase after Dec. 31, 2017.
Clarification of church plan requirements. The bill would clarify which individuals may be covered by plans maintained by church-controlled organizations.
Reforms designed to help individuals save more for retirement would:
Taken together, the bill’s array of changes would cost $16.3 billion over 10 years, according to a projection from the Joint Committee on Taxation. Retirement-related provisions intended to offset that cost include a number of provisions.
Shorter "stretch" IRAs. Most nonspouse beneficiaries in DC plans and IRAs — but not DB plans — would have to complete payouts within 10 years after the IRA owner’s death.
Higher penalty for failure to file. The bill would raise the penalty for failing to file a tax return from $205 to $400 (or, if less, 100% of the tax due).
Stiffer penalties for failure to file retirement plan returns. The penalties for failing to file certain retirement plan returns would increase sharply:
The bill’s unanimous approval by the Ways and Means Committee bodes well for eventual House passage, though the timing and legislative vehicle — retirement bills are usually packaged into larger legislation — are unclear. The bipartisan, bicameral effort to enact retirement reforms got a boost on April 1 when leaders of the Senate Finance Committee reintroduced their version of the Retirement Enhancement and Savings Act, which unanimously passed the committee in 2016. Leaders of the two House and Senate committees say they are working together to shape a final package that could be enacted this year.