On Oct. 27, U.S. House Ways and Means Committee Chairman Richard Neal (D-Mass.) and Ranking Republican Kevin Brady (R-Tex.) introduced the Securing a Strong Retirement Act of 2020. The legislation includes three provisions which are NAGDCA legislative priorities.
If enacted, the bill would make plans easier for state and local governments to administer, and help public employees save more for their retirement through the following NAGDCA-endorsed provisions:
Enable use of collective investment trusts by 403(b) plans. This provision would provide public school, university and other 403(b) plan participants access to the same lower cost investment vehicles available to other state and local government employees. (Sec. 104)
Eliminate the “first day of the month” rule for 457(b) plans. Current law requires that deferral changes be made prior to the first day of the month in which the change is to commence. This was enacted as an administrative convenience prior to the advent of modern recordkeeping technology. The bill would remove this unnecessary impediment to participants’ ability to manage their retirement assets. (Sec. 309)
Permit 457(b), 401(a), 401(k), and 403(b) plan participants to make qualifying charitable distributions (QCDs) up to $130,000 beginning at age 70 ½. Current law allows QCDs of up to $100,000 from traditional or Roth IRA accounts to be excluded from gross income each year. The taxpayer’s required minimum distribution (RMD) may be considered a QCD and, as such, be distributed tax free directly to the qualifying organization. To take full advantage of a QCD as an RMD under current law, a participant in a governmental deferred contribution plan would have to roll plan assets to an IRA prior to taking the RMD. This provision would increase the maximum amount to $130,00 and allow plan participants to make QCDs directly from their plans. (Sec. 311)
In addition to the NAGDCA priorities included in the bill, it also contains other provisions of interest to governmental DC plans.
Simplify and increase the Saver’s Credit. The bill would amend the Saver’s Credit to create a single credit rate of 50 percent, increase the maximum credit from $1,000 to $1,500 per person and increase the maximum income eligibility amount. The bill would also require the Treasury Secretary to initiate a public campaign to raise awareness of the credit. (Sec. 103)
Increase age for beginning RMDs. The SECURE Act raised the RMD age to 72. This bill would increase it further to 75. (Sec. 105)
Increase catch-up contribution at age 60. Under current law, employees who have attained age 50 are permitted to make catch-up contributions to their retirement plan above the otherwise applicable limits. This bill would increase the limit to $10,000, indexed, for those who have reached age 60. (Sec. 108)
Provide for Multiple employer 403(b) plans. The SECURE Act aimed to eliminate barriers to the use of multiple employer plans (MEPs) and improve the efficiency and quality of MEP service providers. This legislation would allow 403(b) plans to participate in MEPs, provided that governmental and non-governmental employers may not participate in the same 403(b) MEP. It would also provide relief from the “one bad apple rule.” That is that the failure by one employer participating in a 403(b) MEP to satisfy the 403(b) plan rules does not affect the tax treatment of the rest of the MEP. (Sec. 109)
Permit plans sponsors to treat student loan payments as elective deferrals for purposes of matching contributions. The bill would permit a plan sponsor to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments.” Governmental employers would also be permitted to make matching contributions in a section 457(b) plan or another plan with respect to such repayments. The provision is aimed at helping employees whose student debt may restrict their capacity to save for retirement, and thus are missing out on available matching contributions. This legislation would allow them to receive those matching contributions by making payments on their loan. (Sec. 110)
Provide a safe harbor for corrections of employee elective deferral failures. This legislation would allow a grace period for plans, including 401(a), 403(b) and 457(b) plans, to correct, without penalty, reasonable errors in administering automatic enrollment and automatic escalation features. The errors must be corrected prior to 9 ½ months after the end of the plan year in which the mistakes were made. (Sec. 114)
Allow governmental pension plans to include certain firefighters, emergency medical technicians, and paramedics. Many cities, towns and counties contract with tax-exempt public safety agencies to provide firefighting and out-of-hospital emergency medical services. This bill clarifies that governmental plans also include a plan which is maintained by such agencies, so that the agencies’ employees can be treated in the same manner as other emergency personnel employed directly by the government. (Sec. 116)
Outlook: A significant number of the provisions in the Securing a Strong Retirement Act are also included in the Retirement Security and Savings Act introduced by Sens. Rob Portman (R-Ohio) and Ben Cardin (D-Md.). While the path forward for retirement legislation in the lame duck session of the 116th Congress is unclear, it is a significant win for NAGDCA to have several of its priorities included in bi-partisan legislation that could be signed into law.
NAGDCA will continue to review the legislation and share analysis as it becomes available.