Will Retirement Legislation Get a Restart in 2015?
When the 113th Congress wraps up in December, it won’t have much to show for its term. Will the 114th Congress that convenes in January be any different?
Will Congress use retirement savings as its own piggy bank, or can we hope for something better? Might there even be real progress in expanding the availability of workplace savings and strengthening the private employer-based system? At the Senate Finance Committee’s September hearing on retirement savings, both Ranking Member Orrin Hatch (R-Utah) and Chairman Ron Wyden (D-Ore.) reminded the committee that retirement legislation has a long history of being bipartisan. Could there be a Hatch-Wyden retirement savings bill in our future?
Tax reform is on the list of priorities for the new Congress. While there is discussion of tax reform, there is also fear that Congress will turn a blind eye to the deferral nature of the retirement savings tax incentives, and choose to “pay for” reform by gutting those incentives.
But there is also good reason for optimism in the next Congress, where Sen. Hatch will become Chairman of the Senate Finance Committee. Hatch’s SAFE Retirement Act lays out a strong blueprint for building on the successes of the employer-based retirement system.
If we were to wake up tomorrow in a world where the SAFE Retirement Act had become law, we’d find that:
- the top-heavy rules had been eliminated;
- employers with nothing else in common could be part of a multiple employer DC plan and, if the plan has a designated service provider, would not have to worry about the one-bad-apple rule;
- mandatory interim amendments could be adopted retroactively at the end of a plan’s regular review cycle;
- we’d encourage adoption of new plans by allowing employers to adopt a new qualified plan up to the due date of tax filings;
- safe harbor 401(k) plans could be amended mid-year as long as there is no reduction in the amount of matching contributions for the year; and
- there would be clarification that forfeitures can be used to fund safe harbor contributions.
For employers that don’t already offer a plan, the SAFE Act provides the “Starter 401(k),” a deferral-only safe harbor for those situations. The Starter 401(k) would provide automatic enrollment and auto-escalation, as well as an $8,000 elective deferral limit (plus catch-up) with no non-discrimination testing or top-heavy contributions. When a business grows to the point that the owner can afford to make higher contributions, a Starter 401(k) could be easily amended to a full-blown 401(k) program.
The SAFE Act also includes a new 401(k) safe harbor that would allow sponsors to spread the match over up to 10% of pay, rather than the current 6%, provided participants are automatically enrolled with auto-escalation — and with a tax credit to help small business owners defray the cost of the match.
In addition to Hatch’s SAFE Retirement Act, similar “spread-match” safe harbor proposals, as well as “open” MEP proposals, were included in legislation proposed during the 113th Congress by Rep. Richard Neal (D-Mass.) in the House (HR. 2117) and Sens. Susan Collins (R-Maine) and Bill Nelson (D-Fla.) in the Senate (S. 1970). Expect retirement savings legislation in the new Congress from all three.
Sen. Tom Harkin (D-Iowa), the current chair of the Senate Health, Education, Labor and Pensions (HELP) committee, is retiring, so he will not be reintroducing his USA Retirement Funds Act (S. 1979), although someone else could take it on. One possibility is Sen. Sherrod Brown (D-Ohio), a co-sponsor of Harkin’s bill.
So stay tuned … 2015 could be a year for retirement savings legislation that actually moves retirement security forward.
Just don’t be discouraged if that doesn’t occur until after the so-called “stretch IRA” provision, or some other retirement revenue raiser, helps to pay for an extension of the highway trust fund in May.
Judy Miller is ASPPA’s Director of Retirement Policy.