Advocacy Update – What’s Next in 2023

On Wednesday, June 7, the American Retirement Association's pension guru Kelsey Mayo and I hosted a webcast to give our pension actuary members an update on our legislative advocacy efforts so far in 2023 and give a preview of what is in store for the future.

Even though the second major retirement policy bill in less than five years – the SECURE 2.0 Act – passed Congress at the end of last year, there remains a few leftover legislative items on the table that the American Retirement Association (ARA) has identified and are pushing forward for the next retirement policy bill. I will highlight only three items covered and encourage you to join the webcast to get all the details.

Retirement Plan Tax Credits for Charities

One priority is to extend the small employer pension plan startup and automatic enrollment credits to tax-exempt entities. Nonprofit Metrics LLC estimates over 1.8 million active tax-exempt organizations in the United States. Because these entities do not have taxable income, they cannot use the credits under existing law to encourage the establishment of qualified retirement plans. The ARA proposes to enable small tax-exempt entities to apply the small employer pension plan startup and automatic enrollment credits against the organization's liability for payroll taxes for the taxable year. This proposal mirrors an existing program that gives small tax-exempt organizations a payroll tax break against expenses for employee health insurance expenses.

Plan Mergers

Another noteworthy issue arises from a provision that initial retirement legislation in the last Congress included (specifically Section 315 of Senators Cardin's and Portman's Retirement Security and Savings Act). Still, the final version of the SECURE 2.0 Act excluded it. This provision permits transfers or retirement plan mergers between 401(a) and 403(b) plans (church plans are already allowed to merge). This would allow certain tax-exempt organizations that, for historical reasons, are maintaining two separate plans to consolidate those plans. This would result in cost savings for tax-exempt plan sponsors as they would go from two plans, two Form 5500 filings, two audits, two plan documents, and two sets of fees to a single arrangement.

ERISA Minimum Age Requirement

A new proposal is being negotiated in Congress to change the minimum age coverage requirement under the Employee Retirement Income Security Act (ERISA) from the current age of 21 to 18. According to the Plan Sponsor Council of America's annual survey, 40 percent of plans currently have a minimum age requirement of 21. In contrast, the rest have an age 18 minimum or no minimum age requirement.

In a recent PSCA Question of the Week, plan sponsors got asked how this change would impact them if mandated. More than half of the respondents stated this change would have no impact. A quarter of respondents stated they would be OK with making the change but would prefer this new group to be exempt from any testing and contribution requirements. Only less than five percent of respondents opposed the change in any circumstance.

The Hill requests technical assistance from the ARA to ensure that employers would be allowed to exempt this expanded class of workers from any testing and employer contribution requirements if Congress proceeds with this change to increase retirement plan coverage.

See the session on-demand here.