Retirement and Beyond: Congress Considers Changes to the Way Americans Save
With the midterm elections looming and an executive order that underscores President Trump’s interest in how Americans save for retirement, it’s increasingly possible that Congress could approve substantive retirement reform in the coming weeks.
The House of Representatives passed the Family Savings Act of 2018 (FSA) on September 28 as part of a broader push that some are calling Tax Reform 2.0. While the FSA contains many provisions that are also in the Retirement Enhancement and Savings Act (RESA), which was first introduced in the Senate in 2016 and reintroduced in March 2018, it also contains some new provisions. RESA is unlikely to pass in its current form, but now that the FSA has been passed by the House, the House and Senate will likely try to reconcile the differences between the two bills and pass something that satisfies both chambers.
Momentum for change is building outside Capitol Hill, too. The US Department of Labor, responding to the president’s executive order, submitted a proposed rule to the Office of Management and Budget for review that would expand access to multiple employer retirement plans. The public will get to see and comment on the proposal after OMB approves it.
With all this momentum building, now is the time for plan sponsors and financial advisors to learn how these changes could affect the issues they care about most.
Clearing the Way for Lifetime Income Options
Both the FSA and RESA contain provisions to encourage more plan sponsors to offer employees the option to invest in products that will convert their retirement savings into lifelong monthly payments. Currently, employees who choose a plan with a lifetime income stream may have to pay fees, taxes or penalties if their employer stops offering the investment. Both the FSA and RESA would allow certain defined contribution (DC) plans to make trustee-to-trustee transfers to an IRA or another employer-sponsored plan to avoid these payments. After an amendment to the FSA shortly before passage, both bills also provide a safe harbor for employers in choosing an annuity provider, thus shielding them from liability as long as they follow certain procedures.