Is There a Lame Duck Opening for Retirement Relief?

A continuing resolution approved by the House of Representatives to temporarily fund the government all but assures that a lame-duck session will happen. Here’s what that could mean for retirement relief.  

The House of Representatives late Sept. 22 approved continuing appropriations legislation (H.R. 8337) by a vote of 359-57 to fund the government through Dec. 11. This extension was based on an agreement reached between House Speaker Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin. The Senate is expected to take up the legislation next week and President Trump is expected to sign it. 

However, because the funding legislation runs only through Dec. 11, that means Congress will have to come back after the elections to either enact another short-term fix or a larger appropriations bill to fund the government for the remainder of fiscal year 2021 (which begins Oct. 1). That opens a door for action on additional legislation could happen as well. 

Of course, all the focus right now is on the passing of Supreme Court Justice Ruth Bader Ginsburg and whether the Senate will confirm a new Justice before the elections. But once the dust settles on the elections and the confirmation process, that could pave the way for significant legislation during the lame-duck session. One X-factor is the election results. Should the Democrats sweep the elections, winning the presidency, taking control of the Senate and maintaining the House of Representatives, they may decide to wait until 2021 to take up significant legislation. But if there is a split in the results, that could pave the way for some deal-making. 

So what’s on the docket? There are a number of pending retirement-based legislative proposals, including some that have a bit of urgency associated with them.   

COVID-19 Relief

At the moment, it’s looking like any kind of deal on additional COVID-19 relief will have to wait until after the elections, as the leaders of both parties remain entrenched in their positions. But once the elections are over, the leaders may be more willing to negotiate. 

DC Plan Funding Relief: With small businesses continuing to face critical cash-flow problems and needing immediate relief, the American Retirement Association continues to push for DC plan funding relief so that sponsors would be able to reduce or eliminate their employer contribution and maintain their safe harbor status for 2020, with a possibility of extending that through the 2021 plan year. 

Under the ARA’s proposal, all plan sponsors with a DC plan would be allowed, on a prospective basis, to suspend their required employer contributions to their plan for 2020. Plan sponsors with fewer than 500 participants would be allowed to waive any employer contributions that have not yet been made to satisfy their 2019 obligations. In addition, the current partial plan termination rules would be altered to ensure such termination does not occur if the active participant count as of March 13, 2021, is 80% of the active participant count at the time the national emergency was declared. 

HEROES and HEALS: Meanwhile, as part of a broader COVID-19 relief package, there are a number of retirement provisions contained in the House-passed HEROES Act and the Senate’s HEALS Act package that could be folded into a year-end agreement. Among the provisions in the HEROES Act are:
 

• waiving required minimum distributions for 2019 for DC plans and IRAs;
• waiving the 60-day and once-per-year limitation rules in the case of rollovers of otherwise RMDs for 2019 and 2020;
• clarifying that eligible retirement plans can rely on an employee’s certification for purposes of determining whether an employee is eligible for the special loan rules under the CARES Act; 
• clarifying that the CARES Act’s special distribution and loan rules also apply to money purchase plans;
• providing extended amortization for single employer plans and extending pension funding stabilization percentages for single employer plans; and 
• modifying the special rules for minimum funding standards for community newspaper plans.

Note that the last day to take advantage of the expanded CARES Act loan provision if the plan allows it was Sept. 22, while the last day to take a Coronavirus-related distribution (CRD) is Dec. 31, 2020. It’s possible these dates could be extended as part of a broader agreement. 

The Senate’s HEALS Act, which actually consisted of a series of bills, would also provide clarification to the application of the CARES Act special rules to money purchase plans and clarify that eligible retirement plans can rely on an employee’s certification for purposes of determining whether an employee is eligible for the special loan rules. 

In addition, the HEALS Act provides clarification of the due date for single-employer pension plan minimum required contributions, which were delayed for 2020 in the CARES Act. The provision applies retroactively as if included in Section 3608 of the CARES Act.

Multiemployer relief: One area that both parties agree need urgent relief is for multiemployer pension plans. Approximately 1.3 million Americans participate in multiemployer plans that are rapidly approaching insolvency and, without action, these plans will threaten to bankrupt the Pension Benefit Guaranty Corporation (PBGC). The HEROES Act included special partition relief, as well as provisions to temporarily delay the designation of multiemployer plans as in endangered or critical status and temporarily extend the funding improvement and rehabilitation periods for plans in critical and endangered status. The House has passed the Butch-Lewis Act, but that legislation faced opposition in the Senate. 

In the meantime, Republican Sens. Charles Grassley (R-IA) and Lamar Alexander (R-TN) issued a white paper outlining possible reforms to the multiemployer system, signaling that there is interest in working toward a solution. 

Paycheck Protection Program: An additional area that has bipartisan support is to extend additional funding for the PPP and to provide hard-hit industries with the option to have a second round of loans. The HEROES Act also clarifies that expenses paid or incurred with proceeds from PPP loans that are forgiven pursuant to the CARES Act and certain loan forgiveness by the Small Business Administration that are not included in gross income do not result in a denial of any deduction or basis of any asset for federal tax purposes. 
SECURE Act 2.0 

An additional legislative initiative that’s possible but less certain in the time that will remain after the election, is action on a so-called SECURE Act 2.0. Rep. Richard Neal (D-MA), who is chairman of the House Ways & Means Committee and spoke this summer at the virtual NAPA DC Fly-in Forum, noted that a SECURE Act 2.0 is already waiting in the wings, and that given the precedent established with the SECURE Act, an agreement could be reached as soon as this year, perhaps in a lame-duck session.

While Rep. Neal hasn’t formally introduced a SECURE Act 2.0 in this session of Congress, the legislation would likely be based on his Automatic Retirement Plan Act, and the Retirement Plan Simplification and Enhancement Act, both introduced in late 2017.  Among the possibilities for this legislation are:

• a new stretch match safe harbor;
• an expansion of the SAVERS credit;
• simplify the top-heavy rules for small business plans to reduce the cost of enrolling new employees; 
• a gradual increase in the RMD date to age 75; 
• allowing matching contributions for student loan payments; 
• allowing CITs for 403(b)s;
• allowing 403(b) PEPs; and
• allowing discretionary amendments to be adopted by due date of tax return.

Moreover, Sens. Rob Portman (R-OH) and Ben Cardin (D-MD) have introduced legislation that includes similar provisions to those outlined by Rep. Neal. 

In summary, Congress will have to return after the election to act on legislation to fund the government for FY 2021, which could include several add-on provisions as part of what’s called an omnibus bill. Whether the lawmakers will have the appetite to address the retirement-based provisions remains to be seen, but there are a number of pending issues that could help spur action, including which way the economy is headed.