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Legislative Relations Committee RMD Proposal

The American Retirement Association’s governmental affairs staff and volunteer Legislative Relations Committee (LRC) both review legislative proposals and proactively propose legislative changes to improve the employer-provided retirement system. Over a period of years, many of ARA’s proposals have appeared in proposed and enacted legislation. This month we want to highlight one of the proposals we are working on that has been included in the Retirement Security and Savings Act of 2018 (S. 3781), a comprehensive retirement policy bill sponsored by Sens. Rob Portman (R-OH) and Ben Cardin (D-MD).

For several years, ARA has supported rationalizing the required minimum distribution (RMD) rules to ensure that individuals are able to strategically draw down their accumulated retirement savings so that the money can last as long as possible during an individual’s lifetime. Under current law, participants are generally required to begin taking distributions from their accumulated retirement savings at age 70½, the required beginning date. The current rules describe in detail the methods for determining the RMD during the participant’s lifetime as well as after the death of the participant, via a lifetime expectancy or mortality table. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries.

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 directed the Treasury Department to update the life expectancy tables for RMDs to reflect the current life expectancy at the time, a task that Treasury completed in April 2002. But these tables have not been updated in 17 years. Fortunately, the Retirement Security and Savings Act directs Treasury to make a further update of these tables by the end of 2019 and every 5 years thereafter. If these tables are not updated on a regular periodic basis, individuals who are projected to live longer are forced to withdraw their retirement assets too quickly.

In fact, the Retirement Security and Savings Act goes even further and increases the required beginning date from age 70½ to age 71 in 2020. The age would be increased further to 72 in 2024, and to 73 in 2030; thereafter it would be adjusted in a manner proportional to increases in life expectancy for someone age 73 in a calendar year, compared to life expectancy for someone age 73 in 2030. However, in order to facilitate retirement planning, any adjustment based on increases in life expectancy would not apply until the fourth year after the calendar year being compared to 2030.

The ARA applauds the leadership of Sens. Portman and Cardin to implement this sound policy that regularly adjusts both the RMD required beginning date and the mortality tables used to calculate the RMD so that individuals can ensure that their retirement savings last throughout the course of an increasing lifespan. We look forward to working with these two retirement policy champions in the new Congress to enact these proposals into law.  

Andrew Remo is the American Retirement Association’s Director of Legislative Affairs.

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