Picking up where they left off in the last Congress, the bipartisan duo of Sens. Rob Portman (R-OH) and Ben Cardin (D-MD) reintroduced their comprehensive “Retirement Security and Savings Act” on May 13.
The 132-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.
In entering the next chapter of their work together, the senators contend that, while real progress has been made in strengthening overall retirement savings since enactment of their landmark legislation in 2001, significant challenges remain. According to the senators, these includes an aging population with inadequate savings, lack of access to employer-sponsored plans in smaller businesses, many low-income Americans without retirement savings and inadequate lifetime savings.
Building on the four themes highlighted above, key provisions in the bill include the following provisions.
Setting More Aside for Retirement
- New automatic safe harbor. A cornerstone provision is the establishment of a new automatic safe harbor, entitled “Secure Deferral Arrangements.” This provision seeks to address concerns that the current safe harbor automatic default deferral rate of 3% during the first year is too low and has resulted in employers setting the deferral amount at this level even though they could set it higher. It 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%. This gives employers the certainty to offer more generous retirement benefits to their employees.
- 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 in the amount of 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 small businesses starting a new retirement plan from $500 up to $5,000 and provides a small business tax credit for adopting the more generous safe harbor from costly rules.
- Self-correction under EPCRS. Simplifies the rules for small businesses, including allowing small businesses to self-correct all inadvertent plan violations under the IRS’s Employee Plans Compliance Resolution System (EPCRS) without paying IRS fees or needing formal submissions to the IRS.
- Top-heavy rule. Simplifies “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 reenroll plan participants 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.
Certainty and Flexibility
- Increase the RMD age. Increases the age for required minimum distributions from age 70½ to age 72 in 2023 and age 75 by 2030.
- 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 prevent older Americans from outlasting their savings.
Portman and Cardin introduced their legislation the day before the Senate Finance Committee held a hearing on challenges within the retirement system. While much of the hearing centered around the bipartisan Retirement Enhancement and Savings Act (RESA) reintroduced April 1 by Sens. Chuck Grassley (R-IA), Chairman of the Finance Committee, and Ron Wyden (D-OR), the Ranking Member, several senators and witnesses expressed support for the Portman-Cardin legislation.
With the House poised to approve the Setting Every Community Up for Retirement Enhancement (SECURE) Act in the next couple of weeks, it’s possible that a final bill containing components of RESA, the SECURE Act and the Portman-Cardin bill – which all have some overlapping features – could be enacted in the coming weeks, while a broader bill with additional elements from the more expansive Portman-Cardin legislation could move this summer.