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Portman, Cardin Reintroduce Sweeping Retirement Reform Bill


In what may be their final act teaming up on retirement security legislation, the bipartisan duo of Sens. Rob Portman (R-OH) and Ben Cardin (D-MD) on May 21 reintroduced their Retirement Security and Savings Act (S. 1770). 

Like the previous version introduced in the last session of Congress, the 163-page bill includes more than 50 provisions designed to strengthen Americans’ retirement security by addressing four major opportunities in the existing retirement system: 

  • allowing people who have saved too little to set more aside for their retirement; 
  • helping small businesses offer 401(k)s and other retirement plans; 
  • expanding access to retirement savings plans for low-income Americans without coverage; and 
  • providing more certainty and flexibility during Americans’ retirement years.  

The introduction of the Retirement Security and Savings Act sets the stage for action in the Senate and further increases the chances for action in Congress. 

The legislation comes following action by the House Ways & Means Committee, which on May 5 passed by unanimous consent the Securing a Strong Retirement Act of 2021 (H.R. 2954)—a.k.a. the “SECURE Act 2.0.” Several provisions in the Portman-Cardin bill overlap with the SECURE Act 2.0. 

Additionally, both Portman and Cardin serve on the Senate Finance Committee, which has jurisdiction over retirement policy in relation to the Internal Revenue Code. They also have worked together on retirement policy legislation for more than two decades, sponsoring more than 20 retirement savings bills together, major portions of which were enacted into law.

“Since our last comprehensive retirement package became law in 2001, we’ve seen more Americans participate in 401(k)s and IRAs to save for their retirement, but our nation’s savings rate still remains too low and there are far too many Americans with no retirement account at all,” Portman stated in urging his colleagues to support the bill. 

Portman, however, earlier this year announced that this will be his last term serving in the Senate. Similarly, Rep. Kevin Brady (R-TX), who is the ranking Republican on the House Ways and Means Committee, recently announced that he does not plan to run again.  Meanwhile, Sen. Ron Wyden (D-OR), Chairman of the Senate Finance Committee, has not yet released a comprehensive retirement bill, but it is anticipated that he will do so in the coming weeks, perhaps this fall, suggesting that the House and Senate may be working on parallel tracks.  

Building on the four themes highlighted above, key provisions in the bill include the following.

Setting More Aside for Retirement

  • New automatic safe harbor. Seeking to address concerns that the current safe harbor automatic default deferral rate of 3% during the first year is too low, the bill provides a new incentive for employers to offer a more generous automatic enrollment plan and receive a safe harbor from costly retirement plan rules. The provision provides a tax credit for employers that offer these safe harbor plans starting at 6% of pay in addition to the existing safe harbor at 3%. 
  • Catch-up contributions. Increases the catch-up contribution limits from $6,000 to $10,000 for individuals over age 60 with 401(k) plans.
  • Student loan debt. Helps employees who are struggling to save for retirement and pay off student loan debt by allowing employers to make a matching contribution to the employee’s retirement account based on his or her student loan payment.
  • SIMPLE contributions. Allows employers to make an additional contribution on behalf of employees in a small business SIMPLE retirement plan.
  • Indexation. Indexes to inflation the allowable catch-up contribution to IRAs.

Help Small Businesses Offer 401(k)s and Other Retirement Plans

  • Start-up credit. Increases the current law tax credit for the smallest businesses starting a new retirement plan to a larger percentage of their costs. 
  • Self-correction under EPCRS. Simplifies rules for small businesses, including allowing all businesses to self-correct all inadvertent plan violations under the IRS’ Employee Plans Compliance Resolution System (EPCRS) without paying IRS fees or needing formal submissions to the IRS.
  • Top-heavy rules. Simplifies the top-heavy rules for small business plans to reduce the cost of enrolling new employees.
  • Reenrollment credit. Establishes a new three-year, $500 per-year tax credit for small businesses that automatically re-enroll plan participants into the employer plan at least once every three years. 

Expand Access to Low-Income Americans

  • Saver’s Credit. Expands the existing Saver’s Credit income thresholds to give more Americans access to increased credit amounts.
  • Government match. Creates a new “government match” for low-income savers by making the Saver’s Credit directly refundable into a retirement account.
  • Part-time workers. Expands the eligibility of 401(k)s to include part-time workers that complete between 500 and 1,000 hours of service for two consecutive years.
  • Lost and found. Makes it easier for employees to find lost retirement accounts by creating a national, online database of lost accounts.

Certainty and Flexibility 

  • Increase RMD age. Increases the age for required minimum distributions from age 72 to age 75 by 2032. 
  • RMD exception. Creates an exception from RMDs for individuals with $100,000 or less in aggregate retirement savings, allowing them to choose to keep saving for retirement at any age.
  • RMD penalty reduction. Reduces the current penalty for failing to take RMDs from 50% of the shortfall amount to 25% in most cases and as low as 10% if self-corrected.
  • QLAC expansion. Encourages expanded use of Qualifying Longevity Annuity Contracts (QLACs) to help assist older Americans from outliving their savings. 
  • Recovery of overpayments. In seeking to protect retirees who received retirement plan overpayments through no fault of their own, the provision implements certain rules that address recoupment by plan sponsors and fiduciaries.  

Defined Benefit Provisions

The legislation also includes a package of defined benefit plan reforms that make technical, but important, policy changes. 

  • Cash balance plans. In the case of an applicable DB plan which provides variable interest crediting rates, ERISA and the Internal Revenue Code would be amended to specify that the interest crediting rate which is treated as in effect and as the projected interest crediting rate shall be a reasonable projection of such variable interest crediting rate, not to exceed 6%. The change would apply with respect to years beginning after the date of enactment. 
  • Aligning Use of Lookback Months to Determine Interest Rates. This provision calls for modifying Treasury Regulation Section 1.417(e)–1(d)(10)(ii) (or any successor provision) to provide that the same rule applicable to modifications of the time for determining the applicable interest rate shall apply to modifications of the time for determining any interest rate used by a plan to the extent that the use of such interest rate is permissible under Code Section 417(e)(3). Such modified regulations also would require that, after any such modification of such time under a plan pursuant to this section, no further modifications of such time are to be permitted for five years without the consent of the Treasury Secretary. 
  • Mortality Table Corrections. Not later than six months after the date of the enactment, the Treasury regulations relating to the Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans shall be amended such that, for valuation dates occurring during or after 2022, such mortality improvement rates shall not assume future mortality improvements at any age which are greater than 0.78%. Additionally, the legislation calls for modifying the 0.78% figure as necessary through regulations to reflect material changes in the overall rate of improvement projected by the Social Security Administration.
  • Cease Double-Indexing the Variable Rate Premium. Here, the legislation seeks to eliminate the double-indexing of the variable rate premium by amending clause (ii) of section 4006(a)(3)(E) of ERISA by striking “the applicable dollar amount under paragraph (8)” and inserting $38. In addition, subsection (a) of section 4006 of ERISA (29 U.S.C. 1306(a)) would be amended by striking paragraph (8), which details the applicable dollar amount for variable rate premiums. The amendments would apply to plan years beginning after Dec. 31, 2021. 
  • Enhancing Retiree Health Benefits in Pension Plans. In general, the legislation provides additional relief and clarifications for pension plans utilizing Code Section 420 of to transfer certain, overfunded amounts to a retiree health benefit account. Among other things, the bill extends the qualified transfer date from the end of 2025 to the end of 2031. The bill also adds a new special rule for de minimis transfers and extends the cost maintenance period under section 420(c)(3) from five taxable years to seven taxable years. 

EPCRS Expansion

The bill would expand the IRS Employee Plans Compliance Resolution System (EPCRS). 

It would amend Revenue Procedure (Rev. Proc.) 2019-19, which the IRS issued on April 19, 2019 and which updated the comprehensive system of correction programs for sponsors of retirement plans that have not satisfied the requirements of Code Sections 401(a), 403(a), 403(b), 408(k) and or 408(p) for a given period of time. The bill amends Rev. Proc. 2019-19 to provide that the correction period for an inadvertent failure is indefinite and has no last day, except for failures the IRS identified before any self-correction started. 

The bill also would expand EPCRS to provide that: 

  • Custodians of IRAs would be able to use EPCRS to address inadvertent failures for which the owner of an IRA was not at fault, including (but not limited to): 
    • waivers of the excise tax which would otherwise apply under Code Section 4974;  
    • under the EPCRS self-correction program (SCP), waivers of the 60-day deadline for a rollover when the deadline is missed for reasons beyond the reasonable control of the account owner; and  
    • rules permitting a nonspouse beneficiary to return distributions to an inherited IRA in a case in which, due to an inadvertent error by a service provider, the beneficiary had reason to believe that the distribution could be rolled over without inclusion in income of any part of the distributed amount.
  • Plans to which EPCRS applies, and custodians and owners of IRAs, could self-correct—without an excise tax—any inadvertent failures through which a required minimum distribution is made no more than 180 days after it was required to be made. 
  • There would be an additional safe harbor means of correcting inadvertent failures, including safe harbor means of calculating the earnings which must be restored to a plan in cases in which plan assets have been depleted due to an inadvertent failure.

The bill also provides that the Secretary of Labor would treat any loan error corrected under EPCRS as amended as meeting the requirements of the Department of Labor’s Voluntary Fiduciary Correction Program. 

All comments
Mary Rocco
2 years 3 months ago
So increasing 401k catchup to 10K but leaving HSA maximum contributions below 5K? Does anyone lobby for the benefit of Health Savings Accounts?