Bipartisan Retirement Reform Introduced in House
Bipartisan members of the Ways and Means Committee have introduced a package of retirement reforms known as the Securing a Strong Retirement Act of 2020. The legislation is broad, but a few provisions are outlined below.
The legislation would require automatic enrollment of new participants into 401(k), 403(b) and SIMPLE plans. Contribution rates would be between 3% and 10%, and lower deferral rate would increase annually by 1% until reaching 10%. This would be a default enrollment, but participants could opt out or select a different contribution rate. Small employers with under 10 employees and new employers who have been in business less than three years would be exempt from these requirements.
The legislation would also make changes to the required minimum distribution (RMD) rules. First, a participant’s RMD start date would increase from age 72 to 75. The legislation also contains clarification to the SECURE Act, emphasizing that participants of defined benefit plans who retire after the year they turn 70½ are still entitled to an actuarial increase for the period after age 70½ for which they are not receiving distributions. Finally, the tax for failure to take a required RMD would be lowered from 50% to 25% and participants in defined contribution plans with less than $100,000 in their account on the last day of the year before the year they turn 75 would be exempt from RMD rules.
The bill would also give fiduciaries of retirement plans the discretion to decide not to recoup overpaid benefits. Additionally, plan would not be able to attempt to recoup benefit overpayments if the first overpayment occurred three or more years before the participant received notice of the overpayment.
The Office of Retirement Savings Lost and Found would also be established by the bill. Plans would be required to transfer small amounts (less than $1,000) of lost retirement accounts to the Office, which would then invest that money in Treasury securities.
Even if it does not advance this year during the lame duck session, the legislation’s bipartisan support suggests it may still have life into 2021.