Bills
| 3.23.22

Should Congress Make Bipartisan Reforms to 401(k) Plans & IRAs to Help Americans Save for Retirement? (H.R. 1994)

Do you support or oppose this bill?

What is H.R. 1994?

(Updated June 30, 2020)

This bill — known as the SECURE Act — would modify the requirements for employer-provided retirement plans including 401(k) plans, individual retirement accounts (IRAs), and other tax-favored savings accounts with the goal of expanding opportunities for Americans to contribute to their retirement. A breakdown of its various provisions can be found below.

Expanding Retirement Savings

This section of the bill would:

  • Increase the credit for plan start-up cost to make it more affordable for small businesses to set up retirement plans, and create an additional new annual $500 per employee tax credit for employers to defray costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment.

  • Repeal the maximum age for traditional IRA contributions, which is currently set at age 70 ½.

  • Increase the required beginning date for mandatory IRA distributions from age 70 ½ to 72.

  • Allow taxable non-tuition fellowship and stipend payments to qualify as income for the purposes of IRA contributions.

  • Allow long-term part-time workers to participate in 401(k) plans if they’ve completed either one year of service with more than 1,000 hours or three consecutive years with at least 500 hours of service.

  • Allow qualified defined contribution plans, section 403(b) plans, or governmental section 457(b) plans to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan or IRA of lifetime income investments if a lifetime income investment is no longer authorized to be held as an investment option under the plan. This would allow participants to avoid surrender charges and fees and preserve their lifetime income investments.

  • Allow penalty-free withdrawal from retirement plans for individuals in case of birth or adoption.

  • Qualified employer plans would be prohibited from making loans through credit cards and other arrangements.

  • Simplify 401(k) safe harbor rules to eliminate the notice requirement while maintaining the requirement to allow employees to make or change an election at least once per year.

Administrative Reforms & Other Benefits

This section of the bill would:

  • Require benefit statements to defined contribution plan participants to include a lifetime income disclosure at least once during any 12-month period, which would illustrate the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams, including a qualified joint and survivor annuity for the participant and the participant’s surviving spouse and single life annuity.

  • Expand 529 education savings accounts to cover costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools.

  • Reinstate for one year the exclusion for qualified state or local tax benefits and qualified reimbursement payments provided to members of qualified volunteer emergency response organizations and increases the exclusion for qualified reimbursement payments to $50 for each month the volunteer performs services.

Revenue Provisions

This section of the bill would:

  • Modify required minimum distribution rules to individuals other than the surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not mroe than 10 years younger than the IRA owner, or the IRA owner’s child so that distributions are completed by the end of the 10th calendar year after the IRA owner’s death.

  • Increase the failure to file penalty to the lesser of $400 or 100% of the amount of tax due.

  • Increase penalties for failure to file retirement plan returns, including Form 5500, a registration statements, a notification of change, or a withholding notice.

  • Allow the Internal Revenue Service (IRS) to share returns information with Customs and Border Protection (CBP) for the purposes of administering and collecting the heavy vehicle use tax.

The bill’s full title is the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.

Argument in favor

This bipartisan bill would make a number of common sense reforms to make it easier for workers and small businesses to save for retirement and improve enforcement of rules related to retirement plans.

Argument opposed

There’s no need to reform laws and regulations related to retirement plans, even on a bipartisan basis. Alternatively, this bill should include more substantial reforms.

Impact

Americans with retirement plans, such as a 401(k) or an IRA; businesses; the IRS and other relevant federal agencies.

Cost of H.R. 1994

The CBO estimates that enacting this bill would have the net effect of reducing deficits by $9 million over the 2019-2029 period.

Additional Info

In-Depth: House Ways and Means Chairman Richard Neal (D-MA) introduced this bill to expand opportunities for Americans to contribute to their retirement savings:

“Americans currently face a retirement income crisis, with too many people in danger of not having enough savings to maintain their standard of living and avoid sliding into poverty. The SECURE Act goes a long way in addressing this problem by making it easier for Americans to save. Passage of this bill is a tremendous bipartisan accomplishment, and I hope to see the measure move through Congress and be signed into law in short order.”

Ways and Means Ranking Member Kevin Brady (R-TX) added:

“We are creating opportunity for workers across the country with this bipartisan legislation to help them make their own decisions about their finances and retirement. Our reforms will help families save more and earlier for the future, ensuring folks have the flexibility and control over their own savings they need for whatever life throws their way.”

This legislation passed the House Ways & Means Committee on a voice vote and has the support of 58 bipartisan cosponsors, including 36 Democrats and 22 Republicans.


Media:

Summary by Eric Revell

(Photo Credit: iStock.com / AndreyPopov)