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Bills Would Address Multiemployer Plans, Savings

Concern about retirement plans and savings can transcend ideology and politics — even in Congress. Members from both the House and Senate, and hailing from both major political parties, have unveiled bills they intend to address various aspects of retirement plans’ administration and functions.

Multiemployer Plans

House Committee on Education and the Workforce Chairman John Kline (R-Minn.), has unveiled a draft of a proposal to address issues with the nation’s multiemployer pension system.

More than 10 million individuals rely on multiemployer defined benefit plans, which are created by collective bargaining agreements and sponsored by multiple employers. However, in recent years a number of these plans have been confronted with severe funding challenges.

To help address these challenges, in 2013 a coalition of unions and employers led by the National Coordinating Committee for Multiemployer Plans (NCCMP) proposed a consensus set of policy recommendations to strengthen the multiemployer pension system. Many of these recommendations were enacted when President Obama signed into law the bipartisan Multiemployer Pension Reform Act. However, according to Kline, Congress did not adopt reforms at that time to modernize multiemployer pensions through the creation of a new composite plan design.

According to a press release, as part of the committee’s ongoing efforts to strengthen retirement security, Kline has put forward a draft proposal that would allow unions and employers to create “composite” pension plans. A composite plan is a new type of retirement plan that combines the flexibility and certainty of a 401(k)-style defined contribution plan with the lifetime income provided by a defined benefit pension plan. These so-called composite plans will be professionally managed, and benefits will be provided in the form of annuities. The trustees managing the composite plan will set benefit levels based on incoming contributions and conservative funding requirements.

According to the draft, if the composite plan is not expected to be 120% funded in 15 years, the plan will be required to implement a remediation strategy that may include contribution increases, benefit accrual decreases and benefit adjustments.

The proposal will ensure that existing multiemployer pension plans, also known as legacy plans, are sufficiently funded, even, according to a summary of the discussion draft, for employers and unions that choose to transition to new composite plans. Employers who contribute to a composite plan will be required to fund existing multiemployer pension commitments.

However, unlike a traditional defined benefit plan, retirement benefits offered through a composite plan will not be eligible for the Pension Benefit Guaranty Corporation (PBGC) insurance guarantee.

The committee is soliciting public feedback on the proposal, and it is also interested in receiving ideas for other reforms to improve the long-term fiscal health of the PBGC. A Q&A on the discussion draft is available here.

Retirement Saving

Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) is working on legislation designed to “help more working families and recent college graduates save for retirement,” while also cracking down on so-called “mega Roth IRAs.”

According to a press release, the Retirement Improvements and Savings Enhancements (RISE) Act would:

  • Allow employers to make matching contributions to a 401(k) retirement plan while their employees make student loan repayments. Under this proposal, recent graduates who cannot afford to save money above their student loan repayments would no longer have to forego the employer match.

  • Make the Saver’s Credit refundable so that it is available to Americans with no income tax liability, simplify its structure, require that the credit amount be contributed directly to a tax-favored retirement plan and increase its income cap.

  • Gradually increase the age for required minimum distributions.

On the latter point, the draft calls for increasing the RMD age from 70-1/2 to 71 in 2018. The age would be increased further to 72 in 2023, 73 in 2028, and thereafter would be adjusted in a manner proportional to increases in life expectancy. The bill also would apply the lifetime RMD rules to Roth IRAs. In addition, the legislation draft provides that participants who reach the required age with balances in their retirement plans of less than $150,000 would not be required to begin taking distributions.

Mega ‘Plans’

A “discussion draft” of the RISE Act would prohibit further contributions to a Roth IRA if its total value exceeds $5 million. The bill also would require distributions of amounts over the cap. It would also eliminate Roth conversions for both IRAs and employer-sponsored plans, and eliminate stretch IRAs.

The discussion draft is a detailed legislative proposal, but not final. It is being circulated to stakeholders, members of Congress, federal officials and others for review and comment. The responses will be reviewed and, if appropriate, incorporated into legislation.

Comments on the proposal can be sent to [email protected].

A one-page summary of the legislative proposal can be found here. A longer summary can be found here and legislative text can be found here. A Joint Committee on Tax technical explanation can be found here