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 bill 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 announced earlier this year that this will be his last term serving in the Senate. On the other side of the Capitol, Rep. Kevin Brady (R-TX), the ranking Republican on the House Ways and Means Committee, also announced recently 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.
- Re-enrollment 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-funded 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.
The legislation also includes a package of defined benefit plan reforms, including aligning the use of lookback months to determine interest rates; corrections of mortality tables; and enhancing retiree health benefits in pension plans—as well as revisions to the IRS Employee Plans Compliance Resolutions System (EPCRS). For details on those provisions, click here.