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Retirement Savings and Tax Reform 2.0 — Will it Pan Out?

Building on last year’s Tax Cuts and Jobs Act (TCJA), House Ways and Means Committee Chairman Kevin Brady (R-TX) has released a preview of Tax Reform 2.0 – and it contains retirement-related provisions.

On Sept. 6, Brady released three one-page previews of the second round of tax cuts initiative that he plans to act on next week. The “Promoting Family Savings” component seeks to help local businesses provide retirement plans to their workers and help workers participate in retirement plans, including:

  • allowing small businesses to join together to create a 401(k) plan more affordably (presumably this is the open MEPs or pooled employer plan (PEP) proposal);
  • giving employers more time to put new retirement plans in place;
  • simplifying the rules for participation in employer plans;
  • exempting small retirement accounts from mandatory payouts;
  • eliminating the age limit on IRA contributions; and
  • allowing military reservists to maximize their retirement contributions.

The one-page preview also reiterates the proposals Brady outlined in July when he announced his intent to act on Tax Reform 2.0. Those proposals seek to:

  • create a new “Universal Savings Account” to offer a fully flexible savings tool that families could use at any time;
  • allow families to access their retirement accounts penalty-free for new child expenses, with the ability to replenish those accounts in the future; and
  • expand Section 529 education accounts to also be available to pay for apprenticeship fees, cover the cost of home schooling and help pay off student debt.

According to reports, the committee will mark up the package of tax relief bills the week of Sept. 10, with a goal of having the legislation ready for House floor consideration later this month.

RESA Redux?

Based on his outline, it appears Brady plans to incorporate some provisions from the Retirement Enhancement and Savings Act (RESA/S. 2526), but it’s not clear to what extent.

That legislation was reintroduced in March by Senate Finance Committee Chairman Orrin Hatch (R-UT) and has been on the radar for the last several months. A companion bill (H.R. 5282) introduced in the House March 14 by Rep. Mike Kelly (R-PA) currently has 64 cosponsors.

RESA includes several provisions that seek to make it easier for small businesses to adopt and maintain a workplace retirement plan, such as a start-up tax credit to defray the cost of adopting a retirement plan and add an additional tax credit for plan designs with an automatic enrollment feature. The legislation also aims to expand retirement plan coverage by allowing two unrelated employers to join a PEP and seeks to improve upon the existing 401(k) safe harbor plan design.

How the House approaches the Tax Reform 2.0 effort could be a key indicator of whether the retirement savings component will be enacted. With support from both parties in both chambers, a RESA-type bill with some additional retirement-based provisions is considered to be one of the only pieces of major legislation that stands a chance of being enacted this year, possibly even in a lame-duck session following the Nov. 6 elections.

If a RESA-type bill is combined with broader provisions to make the tax cuts permanent or further reduce the corporate tax rate, however, it would face an uphill climb in the Senate, where it would require some Democratic support to reach the 60-vote threshold to cut off debate.

While the Trump administration has not yet weighed in on RESA, the president’s Aug. 31 executive order on retirement security probably indicates that it would support the legislation.