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Washington Update Highlights Proposals, Wins and Likely Waits

Government Affairs

What does the rest of 2020 portend for retirement plans? The election? American Retirement Association Retirement Education Counsel Robert Richter provided a look ahead, as well as a retrospective of recent months, in a Sept. 23 ASPPA Washington Update webcast. 

Not Taking Wing

Richter said he is “not very optimistic” that the House and Senate will take action on the HEROES Act and the HEALS Act, respectively, any time soon. And, he added, a SECURE Act 2.0 is “not going to happen this year.” 

Nonetheless, Richter outlined what a possible SECURE Act could contain:

 

  • A new stretch-match safe harbor: 
    • $1 on first 1%, $.50 on next 5%, $.20 on next 4% 
    • a small employer credit for employer contributions = limited to 2% NHCE comp, for the first five years of employee participation 
  • Expansion of the SAVERS Credit: 
    • 20% credit income threshold increased from $32,500 to $40,000 
    • refundable if deposited into qualified plan or IRA 
  • Top-heavy testing relief from excludable employees 
  • Gradual increase in required minimum distribution (RMD) date to age 75 
  • CITs for 403(b)s 
  • Allowing: 
    • matching contributions for student loan payments; 
    • 403(b) PEPs; and  
    • discretionary amendments to be adopted by due date of tax return.

Similarly, Richter said that despite pressure for revenue, he considers it “highly unlikely” that there will be action on the Wall Street Tax Act during the lame duck session between the November election and the swearing in of the next Congress. He noted that the sponsors of the Wall Street Tax Act call it “A new progressive tax on financial transactions that would generate billions of revenue, while addressing economic inequality and reducing high risk and volatility in the market.” Richter himself characterized it as “essentially a tax on every financial transaction,” and that not only would one-third of the $777 billion in revenue it is projected to raise come from taxes imposed on retirement savings, it also would affect the two-thirds of retirement plan participants who are middle and low income. 

Elections Have Consequences

And what of the months after the lame duck session, which could be the start of a new administration? 

Richter noted that the Biden campaign has outlined a plan for retirement coverage that calls for almost all workers without a pension or a 401(k)-type plan to be provided with access to an automatic 401(k); it also would create a mandatory national IRA plan for those whose employers do not offer a retirement plan. The Biden campaign also has proposed equalizing benefits across the income scale, Richter noted, and would replace the existing exclusion and deduction with a flat refundable tax credit. 

If Joe Biden wins the presidential election, Richter says, the new administration’s plans “would evolve over a period of years.” He noted that proposals to equalize benefits would result in an increase in how valuable deductions are. And Richter added that the ARA is concerned that a flat tax on funds intended for retirement savings would reduce employers’ interest in offering a plan. 

Richter also reminded attendees that if a new administration comes to power, the status of proposed regulations that had not been published in the Federal Register, or that have been published but have not yet taken effect, are uncertain. 

If Biden wins the election, said Richter, expect these instructions to be sent to the heads of all federal agencies:

 

  • Do not send publish any regulations until reviewed by a Biden appointee. 
  • Withdraw any regulation that has been sent to the Federal Register but not yet published. 
  • Regarding any regulation that has been published in the Federal Register but not taken effect, temporarily postpone the effective date 60 days and consider proposing regulation to extend the date further.

Particularly at risk in the event of a Biden win, Richter said, are the following: 

  • final E-disclosure regulations; 
  • proposed PTE with regard to investment advice; 
  • proposed regulations regarding the use of ESG factors; and  
  • proposed regulations on voting proxies.

These are “politically charged regulations that will certainly be on the radar,” he told attendees. 

At the Agencies

Richter also discussed recent regulatory activity. Among the IRS guidance he addressed was Notice 2020-68, in which he said the agency “gave us some good news and some really bad news.” He noted that: 

 

  • The start-up credit applies if an employer joins a MEP/PEP that has an EACA. 
  • Birth/adoption distributions of $5,000 per child per parent would be allowed. The notice, he said, provided confirmation that distributions are “not based on need.” 
  • The distributing plan must accept repayment if an individual is still eligible under the plan; there is no guidance on how long it can take to repay the distribution. 
  • For long-term part-time (LTPT) employees, service for vesting prior to 2021 must count; Richter characterized this provision as “an administrative nightmare” and remarked that “It’s got to be really difficult to administer.”
  • An amendment to adopt in-service distributions before age 59½ can be adopted by the end of the 2022 plan year for the private sector, or 2024 for government plans. 

“We are expecting a lot more” IRS guidance to be coming on this matter, Richter said.

The Department of Labor (DOL) has been active as well. Among its recent actions, Richter noted, is the E-Delivery Final Regulation the DOL’s Employee Benefits Security Administration issued and that became effective July 27, 2020. It applies to all ERISA notices including benefits statements, SARs, SMMs and black-out notices; however, it doesn’t apply to health plans, IRS required notices or items that must be furnished upon request. It is estimated to save the retirement plan system $2.4 billion over 10 years, he said, and provides a new safe harbor method.

The first step, however, is that paper notification must be provided to participants of electronic delivery and the right to receive information on paper. The initial notice must identify the email address to which E-delivery will be made, and tell participants of their right to opt out and receive information on paper. And participants must have an electronic address in order for information to not be sent to them on paper. 

“Do not ignore” bounce-backs of electronic information and emails that are sent to participants with electronic documents attached, Richter cautioned. “Cure them promptly,” he added. 

Richter noted that the DOL has acted in the wake of the 5th Circuit Court of Appeals’ throwing out of most of the fiduciary rule the Obama administration put in place, and has proposed a new iteration of a fiduciary rule. “Our [the American Retirement Association] concern is that small employers may be at risk from certain practices” under the new proposal, said Richter. And, he said, there is “ongoing debate” regarding whether rollover advice is ongoing and therefore covered by ERISA.