Legislation that could affect retirement plans is pending on Capitol Hill—the midterm elections loom and its remaining weeks after that will be a “lame-duck” session. But that may not spell doom for those bills, suggested American Retirement Association CEO Brian Graff at the Oct. 3 opening session of the ERISA 403(b) Advisor Conference held in Washington, DC.
“The rhetoric is getting worse as we approach the midterms,” Graff said. And if the Republicans win a majority in the House of Representatives, he said, there is concern that there will be some sentiment to hold off on legislative initiatives before the 118th Congress begins in January 2023.
But action still could be taken on pending legislation, Graff said, since the current House still can pass bills, and the Senate could cooperate on legislation before the end of the session.
“I’m still bullish” on the prospects for passage by the end of the year, Graff told attendees regarding the possibility. However, if passage does not take place, it’s unclear what will happen in the next session, Graff indicated. “I can’t tell you what a package would look like” under a different political scenario, he remarked.
Key Measures
Graff highlighted some key proposals that could affect retirement plans and saving.
Auto-enrollment. Auto-enrollment is “an interesting discussion” and is “something people are very, very focused on,” Graff said. “It really does work,” he said, adding that it’s a good thing from both a policy standpoint and an industry standpoint. Some employers are still reluctant to put auto-enrollment in place, he said; nonetheless, Graff noted that the bill does not provide a mandate that employers must institute auto-enrollment, but instead offers incentives to do so. He added that he does not expect a mandate to be put in place on existing retirement plans.
CITs in 403(b)s. The SECURE Act 2.0 would allow 403(b) plans to invest in collective investment trusts (CITs), Graff said, expressing confidence that there will be a provision in a final bill that would allow that.
Required Minimum Distributions (RMD). The House and Senate both have legislation before them that would delay the age at which RMDs must take place Graff noted, but he added that each chamber has a different take on when and how to raise the RMD age. He remarked that while this provision is “expensive” in terms of budget scoring (delaying government receipt of tax dollars), delaying the effective dates will reduce the short-term impact within the 10-year budget scoring window.
Long-term, Part-time Employees. Action on extending coverage for LTPT employees is a matter that “causes a little bit of consternation” in the recordkeeping world, Graff said, with a tone that acknowledged it likely caused more than just a little bit. He told attendees that congressional staff recognizes that an effective date of 2023 would be a hardship, and he considers it likely that there would be an effective date of 2024 if provisions affecting LTPT employees are part of legislation that is enacted. He noted that while the SECURE Act created this focus, it did so for workers that accrued at least 500 hours in three consecutive years—but the provision currently under consideration would shorten that window to just two consecutive years.
Paper Statements. Graff noted that there is considerable controversy concerning delivery of retirement statements, with one industry group in particular insisting that electronic statements are not sufficient and that their members need to receive information about their retirement account balances on paper. The House-approved SECURE Act 2.0 includes just such a provision, but the legislation pending before the Senate currently lacks such a provision. As a result, it is possible that there could be compromise on the matter, he said—perhaps “trading” the paper statement requirement for the ability to distribute certain IRS documents electronically.
Catch-up Contributions. This, Graff said, is a “pay for”—in fact, he said, there is so much money in this that it would pay for the rest of the legislation. It would basically shift those to all-Roth (from the current participant option), but would not apply to SIMPLE IRAs and SEPs, he said, remarking that it’s hard to believe that a provision about them would not be included in the legislation.
Starter 401(k)s. Legislation creating “starter 401(k)s” is before the Senate but not the House, Graff said. They would be funded by deferral only, and contribution limits would be the same as those for IRAs. Graff explained that he is “pretty confident" that a provision allowing them will be in the final bill.
Saver’s Credit Matching Contribution. The Senate’s EARN Act would change the current Saver’s Credit to a government match for retirement contributions for moderate-income employees. They would be contributed directly into the plan account or IRA of a taxpayer. “This is a big, big, deal,” stated Graff, expressing hope that it would increase participation and savings by moderate-income employees, particularly as it also expands the income levels to which it would be applied.
This is “the most expensive thing” in legislation before the Senate, Graff said. “Will it be complicated? Yes. Will it be messy? Yes.” Nonetheless, he said that he’s “pretty sure we’ll figure out how to make this work”—considering it involves “billions of dollars” in new retirement savings.
