In a rare moment of bipartisan cooperation, the two leaders of the Senate Finance Committee — Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) — have reintroduced the Retirement Enhancement and Savings Act (RESA).
This bill makes a number of important changes to the employer sponsored retirement plan rules — many designed to make it easier for a small business to offer a retirement plan, and strongly supported by the American Retirement Association in its lobbying efforts.
The legislation is an updated version of a bill that passed unanimously through the Senate Finance Committee in September 2016 but then stalled on the Senate floor through the expiration of the last Congress.
Pooled Employer Plans
A core feature of RESA is a provision that would allow two or more unrelated employers to join a “pooled employer plan” (PEP). The PEP could be a single Section 401(a) individual account plan with a tax-exempt trust or a plan of Section 408 individual retirement accounts. The PEP plan document must designate a “pooled plan provider” (PPP) to take responsibility for the proper operation of the plan. The PPP would be a named fiduciary to the plan and would act as the ERISA 3(16) plan administrator.
“This legislation creates workable, voluntary solutions to help workers better save for their future,” Hatch said. “Authorizing multiple employer plans would let smaller employers join together to sponsor one retirement plan for their workers, making it more feasible for businesses of all sizes to offer retirement plans and increasing access for millions of Americans wishing to save for retirement.”
New Small Business Incentives
RESA makes the existing small employer pension plan start-up tax credit more generous and adds an additional credit to encourage small businesses to add an automatic enrollment feature to their new or existing retirement plan design. Specifically, the legislation increases the start-up credit amount to the greater of $500 or the lesser of $250 multiplied by the number of non-highly compensated employees (NHCEs) eligible to participate in the plan up to $5,000. For plans that include the automatic enrollment feature, employers could claim an additional credit of $500. Both of these credits apply for up to three years.
“Working Americans are struggling to set money aside for retirement,” Ranking Member Wyden said. “This bipartisan bill gives employers incentives to make it easier for their employees to save. It also allows seniors over 70 to make tax-free contributions to their IRA. These types of provisions are key to addressing our country’s savings crisis.”
RESA would also give a small business owner more time to make a decision about whether to adopt a qualified retirement plan for the year up until the due date of the employer’s tax return (with extensions) since many small business owners do not know their true profits until their tax returns need to be filed.
Another provision in RESA would improve the existing safe harbor 401(k) plan design in three ways:
- eliminate the unnecessary nonelective safe harbor 401(k) plan notice requirement;
- allow an employer to switch to a safe harbor 401(k) plan at any time during the plan year provided the employer makes a 3% nonelective contribution for all eligible employees; and
- allow an employer to switch to a safe harbor 401(k) plan after the close of the plan year provided the employer makes a 4% nonelective contribution for all eligible employees.
Andrew Remo is the American Retirement Association’s Director of Legislative Affairs.