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RESA Resurfaces in Senate

Legislation

The leaders of the Senate Finance Committee, Chairman Charles Grassley (R-IA) and Ranking Member Ron Wyden (D-OR), have introduced the Retirement Enhancement and Savings Act (RESA) once again. 

The Senate action comes as members of the House Ways & Means Committee are poised to pass its own comprehensive retirement security bill this week, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. 

The House and Senate bills have many things in common, which is a good sign that the two chambers may be able to come to an agreement and send a final legislative product to the President’s desk for his signature in the coming months. Both bills authorize open multiple employer plan (MEP) arrangements. Open MEPs would allow two or more unrelated employers to join a pooled employer plan (PEP) with a designated pooled plan provider (PPP) that will have clear responsibility to ensure that the MEP follows the rules under ERISA and the tax code. 

Both bills also significantly increase the incentives for a small business owner to adopt a new plan by juicing up the small employer pension plan start-up tax credit from the current cap of $500 to up to $5,000 in certain circumstances. The bills also encourage small business owners to design a plan with an automatic enrollment feature that have been proven to increase plan participation by providing a further $500 tax credit for three years.   

Start ‘Smarts’

The bills also include two other provisions that provide more flexibility for small business owners when making decisions to implement a retirement plan benefit. One would give a small business owner up until the due date of their tax return (with extensions) to decide whether or not to adopt a qualified plan for the prior calendar year. The other would give business owners the flexibility to switch to a safe harbor 401(k) arrangement in the middle of a plan year, provided the owner kicks in a 3% nonelective contribution for eligible participants or within a few months after the plan year if the owner kicks in a 4% nonelective contribution for eligible participants. 

The major revenue raiser for both bills is the so-called “stretch IRA” provision (which also applies to defined contribution plans), which generally requires an inherited account balance that exceeds $400,000 to be distributed by the beneficiary by the end of the fifth year following the previous account owner’s death. There are exceptions to this requirement for spouses, disabled or chronically ill individuals, beneficiaries who are not more than 10 years younger than the deceased owner, or a child who has not reached the age of majority. The Senate bill also adds new reporting requirements on the account balances of deceased owners to ensure compliance with the new distribution rules. 

Andrew Remo is the American Retirement Association’s Director of Legislative Affairs.

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