Congress skipped town last week to kick off what will be a seven week summer recess as the 2016 general election campaign gets fully underway. The abnormally long break is the result of both political parties pushing up their nominating conventions this cycle to July. The Republicans are currently holding their convention in Cleveland, OH, while the Democrats will hold theirs next week in Philadelphia, PA.
When Congress returns after Labor Day in September, they will need to pass legislation to keep the government open and funded in the 2017 fiscal year which begins on October 1, 2016. The key question will be the length of time that this funding will last. At a minimum, Congress will need to pass a bill that keeps the government functioning through the general election on November 8, 2016.
United Mine Workers Health and Retirement Benefits
In July 2015, Senators Joe Manchin (D-WV) and Shelley Moore Capito (R-WV) introduced the Miners Protection Act (S. 1714). The bill now has 18 cosponsors, including 6 members of the Senate Finance Committee which has jurisdiction over this legislation. S. 1714 would shore up certain multiemployer funds that provide health and pension benefits to coalminers through money transfers from an existing Abandoned Mine Land (AML) trust fund. There is an outside chance that Congress will act on the legislation before the end of the year. If so, it could provide an opportunity for some other bipartisan retirement issues to be addressed, including a proposal to open up multiple employer defined contribution plans to any unrelated employer.
Tax Reform Blueprint
On June 24, Republicans in the House of Representatives recently finalized the last plank of their policy agenda, with the release of their comprehensive tax reform blueprint.
The bold plan calls for significant cuts in the statutory tax rates on both the wage and investment income for individuals – a move that could well reduce the incentive for business owners and other workers to save for retirement through the current workplace savings arrangements available in the tax code.
Additionally, the blueprint pledges to “continue the current tax incentives for savings” while directing the House Ways and Means Committee – the committee in the House that writes the tax laws – to “consolidate and reform the multiple different retirement savings provisions in the current tax code to provide effective and efficient incentives for savings and investment.” So while the current retirement savings vehicles – like the 401(k) – will not be removed from the tax code under the House Republican plan, those vehicles could be combined into one “cookie cutter” approach. That might, or might not, mean significant changes for the 401(k), but 403(b)s, and potentially even 457(b) programs could be subjected to changes that would render them more like their 401(k) brethren.
The blueprint is politically significant in that it reflects the tax reform parameters and specific ideas of the new Republican leaders in the House of Representatives, namely current Speaker of the House and immediate past Ways and Means Committee Chairman Paul Ryan (R-WI, 1st) and the current Ways and Means Committee Chairman Kevin Brady (R-TX, 8th). (Chairman Brady led the task force that produced the report.)
The blueprint also directs the Ways and Means Committee to “explore the creation of more general savings vehicles” like so-called Universal Savings Accounts outside the employer based savings system in which account holders could withdraw both contributions and earnings at any time, and for any reason, without tax penalties. Legislation has been introduced in Congress that would create this new savings vehicle, which would seriously diminish the relevance of individual retirement accounts (IRAs) and possibly even workplace based savings arrangements.
Below is a list of retirement legislation that has been introduced in Congress as a policy marker this year:
Pension and Budget Integrity Act
On July 14, Senator Enzi (R-WY) introduced the Pension and Budget Integrity Act (S. 3240) in the Senate. The legislation prohibits the use of premiums paid to the Pension Benefit Guaranty Corporation to be used as an offset for other federal spending. The bill is similar to bipartisan legislation introduced in the House in mid-April. A coalition of individual companies and trade associations who represent single employers with defined benefit plans are on Capitol Hill driving this effort. These entities are increasingly fed up with Congress repeatedly increasing PBGC premiums to pay for unrelated spending in the various budget agreements over the last five years.
SAVE UP Act
On July 12, Representative Joe Crowley (D-NY, 14th) introduced the Secure, Accessible, Valuable, Efficient Universal Pension Accounts (SAVE UP) Act (H.R. 5731). This legislation requires employers with 10 or more employees – who do not already offer a retirement plan to all employees – to enroll workers into the SAVE UP account program. Employees are automatically enrolled into the program at a 3% default contribution rate that gradually escalates to 5% over a four year period. The bill also requires employers to contribute to those SAVE UP plans 50 cents per hour worked, per employee. Small employers (defined as employers with gross receipts less than $5,000,000) are eligible to get a tax credit worth the value of contributions to up to 10 employee accounts.
Retirement Savings Lost and Found Act
On June 21, Senators Elizabeth Warren (D-MA) and Steve Daines (R-MT) introduced the Retirement Savings Lost and Found Act (S. 3078). The legislation is intended to stem leakage from our retirement system by creating a repository of “orphaned” account information for individuals. It also changes the automatic plan to IRA rollover rules by raising the current $5,000 cap to $6,000 and also requires that unclaimed balances with less than $1,000 to be automatically rolled into IRAs at Treasury and invested in Treasury securities.