Delaying the age at which plan participants must begin drawing down tax-advantaged savings accounts is just one of the nearly two dozen retirement proposals that benefits advisers see as ripe for action in the new Congress.
Proposals that would fine-tune rules on required minimum distributions (RMDs)—annual payments made to retirement-age participants who need to start liquidating their accounts—should be a focus for lawmakers as they weigh which ones to tackle first, advisers say. One of those includes raising the RMD age to 75 from 72.
Lawmakers in both chambers will have to reintroduce any legislative proposals they’d like to advance in the next congressional session. Two retirement bundles benefits advisers expect to see back in play include the Securing a Strong Retirement Act of 2020 and the Retirement Security and Savings Act of 2019.
The twin proposals share 20 provisions, a baseline supporters said paves the way for bicameral agreement. Many of the noncontroversial proposals have been bouncing around Capitol Hill for the better part of a decade.
The Securing a Strong Retirement Act, by House Ways and Means Committee Chairman Richard Neal (D-Mass.), includes provisions to reward plan sponsors that auto-enroll employees into new work-sponsored accounts, expand the reach of multi-employer programs, and modify rules regarding mandatory retirement plan payouts, among others.
The Retirement Security and Savings Act, by retirement policy vets Sens. Rob Portman (R-Ohio) and Ben Cardin (D-Md.), features complementary tweaks to the saver’s credit—a partial tax credit for contributions low-income individuals make to qualified retirement accounts—as well as inherited individual retirement accounts, and start-up retirement savings plans designed for small businesses.
Retirement tax breaks have been a legislative go-to in recent years, finding a home in the 2019 end-of-year-spending bill (Public Law 116-94), the spring 2020 coronavirus relief bundle (Public Law 116-136), and other standalone proposals. Government regulators are still piecing together guidance for 2019’s sweeping SECURE Act—work that’s projected to continue in the next administration.
But with GOP opposition to deficit spending suddenly back on the agenda now that President-elect Joe Biden is poised to take office, passing bills without offsetting tax hikes may prove to be a political nonstarter.
Some of the proposals “may fall by the wayside” as the price tag rises, according to Claire Rowland, counsel at Nixon Peabody LLP in San Francisco. But she said she’s hopeful the seeds of compromise are there.
“The multi-billion dollar question I have to ask here is: Are we going to pay for this bill?” she wrote in an email.
Rowland urged tax writers to focus on: trimming the excise tax on required minimum distributions; eliminating RMDs for account holders with less than $100,000 saved; and raising the RMD participation age to 75.
Elizabeth Drake, employee benefits practice lead at Miller & Chevalier Chartered in Washington, put higher limits on catch-up contributions—additional money those aged 50-plus can put toward retirement at the end of each year—at the top of her list, followed by RMD-related changes, modifications to the saver’s credit, and tax breaks for startup retirement plans.
A Retirement Security and Savings Act provision allowing plan sponsors of overfunded pensions to put surplus funds toward additional health and life insurance benefits rounded out her legislative to-do list.
“This provision is both timely and critical, given the effect of the pandemic on business revenues,” Drake said.
Patrick Allen, a partner at Womble Bond Dickinson US LLP in Winston-Salem, N.C., was split on the various RMD provisions, ranking the proposed age bump and $100K threshold higher than tinkering with excise taxes.
“It is more beneficial to limit the universe of participants who are required to take RMDs than to reduce the excise tax,” Allen said.
Susan Jordan, employee benefits practice co-chair at Fox Rothschild LLP in Pittsburgh, ranked the RMD provisions as most critical while dismissing some of the other proposals as historical busts.
“Tax credits for startup retirement plans never have had much impact and isn’t even on the radar,” she said. “The Saver’s Credit, likewise, has minimal perceived value.”
On the regulatory side, Drake urged Department of Treasury and IRS officials to continue clarifying the tax treatment of inherited IRAs.
“The SECURE Act provisions that eliminated the ability to ‘stretch’ post-death payments are substantial changes to what were already complex provisions,” she wrote in an email. “Because these changes became effective in 2020, we hope that this guidance is high on the priority list.”