Don’t stop believin’

by Randy Hardock, partner, Davis & Harman, LLP

The longest government shutdown in history. A health care system in disarray. Trillion dollar deficits. Must-pass debt limit legislation that will again raise the specter of government default on its obligations. The threat of recession. Exploding student loan debt. Trade wars. Immigration. Russia. As the nation lurches from one crisis to the next, it is difficult to imagine how our dysfunctional political system will be able to deal with the nation’s marquee problems, let alone address those areas that are receiving less attention, such as retirement savings shortfalls.

Randy Hardock
Randy Hardock

Still, the day will come when Congress once again passes meaningful bills. And one of the crises described above (or some other crisis) will likely serve as the impetus for legislation that carries with it any number of unrelated proposals, potentially including changes in retirement policy. Although the timing and ultimate content of that legislation will largely turn on unpredictable events (such as elections), the likelihood is growing that, at some point, retirement legislation will once again be considered and enacted.

Critically, some familiar faces on both sides of the aisle have been working diligently on a wide range of retirement proposals in anticipation that an opportunity to pass legislation will one day develop. Key among them this Congress are Representative Richard Neal (D-MA), the new chairman of the House Ways and Means Committee; Senators Chuck Grassley (R-IA) and Ron Wyden (D-OR), the chairman and ranking minority member, respectively, of the Senate Finance Committee; and Senators Rob Portman (R-OH) and Ben Cardin (D-MD), the duo that shepherded through major retirement reforms in 2001 while serving in the House.

Given the 2018 election results, any realistic efforts to affect retirement policy this year will need to be bipartisan. But there is hardly a shortage of bipartisan retirement bills percolating, including the Retirement Enhancement and Security Act (RESA), which passed the Finance Committee on a bipartisan basis in 2016 and was reintroduced in the House and Senate in 2018. RESA is widely considered to still have a chance at passage due to broad support for many of its provisions, such as allowing unrelated employers to join together to offer a retirement plan (i.e., “open” MEPs).

A few recurring retirement proposal themes

Amongst the many other retirement proposals that have been emerging, a few recurring themes are distinguishable. One is a renewed effort to significantly expand the number of workers with access to a retirement plan through the workplace. For more than a decade, legislation was repeatedly introduced to require most employers not offering a retirement plan to automatically enroll their employees in a payroll deduction IRA. Although this idea remains in play (and has now been enacted in a number of states), Chairman Neal is expected to take that concept a step farther by reintroducing legislation that would mandate that most employers offer their employees access to some type of retirement plan or similar savings vehicle. Other proposals specifically target coverage for part-time employees by requiring employers to offer long-term part-time employees the opportunity to contribute to the plan (while providing relief from the nondiscrimination rules). Even if not enacted in this Congress, both of those concepts are likely to be found in the platforms of Democratic presidential aspirants in the months ahead.

Three recurring themes in retirement proposals under consideration include:
Renewed effort to significantly expand the number of workers with access to a retirement plan through the workplace.
Measures to encourage more retirement saving.
Ways to help retirees better manage their savings.

A related theme focuses on encouraging more retirement saving. This includes proposals to expand the impact of auto-enrollment features as well as proposals to promote “auto-re-enrollment,” where employees who previously opted out of auto-enrollment (or selected a contribution rate that was lower than the default rate) would be automatically enrolled at the default rate in a subsequent year, unless the employee opts out again (or chooses a lower rate again). Another proposal would help boost lower-income Americans’ retirement savings balances by turning the existing nonrefundable Saver’s Credit into a refundable credit (i.e., a credit that would be available even if the saver did not have tax liability). That proposal would also require that the tax credit from the government be contributed directly to a retirement plan or Roth IRA of the individual. Still another idea would help employees burdened by student loan debt by providing employers a clear path for treating student loan payments as elective deferrals for purposes of providing a matching contribution under the employer’s retirement plan—an idea that could possibly be extended to 529 plan ABLE account contributions, too.

A third major theme in the retirement proposals under active consideration is helping retirees better manage their savings. These ideas range from adjusting the required minimum distribution (RMD) rules so that a lower amount of retirement savings (or in some cases none at all) would be required to be withdrawn, to allowing employers to provide certain retirement planning services to employees on a tax-free basis. Other proposals are aimed at making annuities more attractive by, for example, adjusting the RMD rules so that individuals who only partially annuitize their retirement account could apply any excess annuity payments to their RMD for the year with respect to any remaining interest in the same retirement plan. Others are suggesting the tax-favored use of retirement savings to purchase long-term care (LTC) insurance that would protect retirement savings from potentially catastrophic LTC costs.

Simplifying and modernizing the retirement system

Yet another set of proposals focuses on ideas to simplify the retirement system. One initiative that has gained bipartisan support in both the House and Senate involves the modernization of the rules governing the delivery of required employee benefit plan documents by allowing e-delivery, rather than paper, to be the default delivery method if certain consumer protections are observed. Still other proposals would help address those instances when plan errors occur by making them less costly and easier to correct through modifications to the Employee Plans Compliance Resolution Program, which is the IRS program plan administrators may use to correct plan errors.

Although the many crises being faced by the nation tend to consume the headlines, real policy work on ideas such as those discussed above is still occurring in Congress—an indication that at least a few people in Washington share the hope that one day such efforts will be fruitful. There is certainly room for improvement in the retirement savings landscape, and sooner or later there will be an opportunity to make changes. The elusive goal of simplification should certainly be one of the most important items on the agenda, and it is one area where your ideas might be especially rewarding. The American College of Employee Benefits Counsel is looking for legislative ideas on how to simplify the employee benefits system and is offering a $10,000 prize for the best original idea of 2019. Just search ACEBC for the rules. Anyone is eligible to participate, why not you?

Randy Hardock is a regular columnist for Workplace Insights focusing on legislative and regulatory matters affecting employee benefit plans. He is a partner in the Washington, D.C., law firm of Davis & Harman, LLP, having previously served as Benefits Tax Counsel at the Treasury Department and as Tax Counsel to the Senate Committee on Finance. The opinions expressed are Mr. Hardock’s and do not necessarily reflect the opinions of Bank of America Merrill Lynch. Davis & Harman, LLP is not an affiliate of Bank of America Corporation.