Retirement Legislation Redux

Sometimes on Capitol Hill, what’s old is new again, as two bipartisan retirement policy bills from the last session of Congress were reintroduced this week.

One bill would make it easier for businesses to join a multiple employer plan (MEP), among other changes to the tax code. The other would make it easier for grad students to save for retirement.

It’s worth noting that if legislation containing retirement policy changes were to move in this Congress – and that’s a big if – the provisions in these bills would appear to have a decent chance based on the bipartisan support they enjoy.

Sens. Collins, Nelson Reintroduce Retirement Security Act with Expanded MEPs

On June 20, Senate Aging Committee Chair Susan Collins (R-ME) and Sen. Bill Nelson (D-FL), a senior member of the Senate Finance Committee, reintroduced the Retirement Security Act, which seeks to make it easier for small businesses to offer retirement plans and for individuals to save more for retirement.

Pushing what may be one of the most talked-about retirement policy proposals over the past year, the bill would make it easier for businesses to join a multiple employer plan (MEP) by eliminating the so-called “nexus” provision requiring businesses to have some connection in order to join. This change would allow businesses to share the administrative duties of sponsoring a retirement plan and help lower costs, among other benefits.

Like its predecessor from January 2015, the bill also would shield members of a MEP from losing the tax-qualified status of the entire plan if one employer in the MEP is non-compliant and fails to meet their requirements under the plan. In addition:

  • the Treasury would be directed to “simplify, clarify, and consolidate required notices to lessen costs” of maintaining a retirement plan;
  • the IRS would be prevented from challenging the tax benefits of plans that provide employees with an employer match on contributions of up to 10% of their pay; and
  • to ensure that current measures to encourage savings are functioning as they were intended, the Treasury Department would be directed to make the Saver’s Credit available to Form 1040 EZ filers.

Helping Grad Students Save for Retirement

Meanwhile, as we noted last year when this legislation was first introduced, politics can make for strange bedfellows. In this instance, Sens. Elizabeth Warren (D-MA) and Mike Lee (R-UT), along with new cosponsors Sens. Ron Wyden (D-OR) and Tim Scott (R-SC), reintroduced legislation on June 20 to allow proceeds from a graduate student’s stipend or fellowship to be contributed to an IRA.

Under current law, fellowship or stipend funding is counted as taxable income by federal and state governments, but is not characterized as “compensation” for purposes of retirement savings. Thus, it cannot be contributed on a tax-preferred basis in an IRA.

According to a fact sheet on the bill, the Graduate Student Savings Act of 2017 would amend Code Section 219(f) to allow “any amount paid to an individual to aid the individual in the pursuit of graduate or postdoctoral study or research” to be considered compensation for purposes of determining qualified retirement contributions to individual retirement plans.

The senators explain that since doctoral students typically take about seven years to complete a degree, essentially they can be prevented from saving a portion of their income in a tax-advantaged plan during that period. In addition, a majority of doctoral students report receiving financial support from fellowships or grants, and almost a third of all students claim that fellowships or grants were their primary source of funding.

The legislation is supported by Fidelity Investments, TIAA and Betterment as well as labor unions including the International Union of United Automobile, Aerospace, & Agricultural Implement Workers of America (UAW), the Service Employees International Union (SEIU), the National Association of Graduate-Professional Students (NAGPS), and American Federation of Teachers (AFT).

The bill was originally introduced in 2016 by Sens. Warren and Lee, along with companion legislation in the House sponsored by Reps. Joe Kennedy (D-MA) and Luke Messer (R-IN).

A fact sheet on the legislation is available here; the full text of the bill is here.

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