A Senate Finance Committee tax-reform working group has recommended extensive amendments to current retirement and savings tax policy.

The Savings and Investment Working Group, one of five groups assigned to review various areas of tax reform, was assigned jurisdiction over capital gains taxes, financial products, defined benefit pension plans, and private retirement savings accounts.

But because it was specifically charged with developing “consensus, bipartisan policy solutions,” the group, co-chaired by Sen. Mike Crapo, R-ID, and Sherrod Brown, D-OH, only produced recommendations relative to private retirement savings.

That bodes well for advocates of legislative action relative to retirement policy and suggests a continuation of the bipartisan spirit legislative watchers say has traditionally accompanied retirement policy.

That is not to say that amid the report’s consensus there was not some difference.

Read: Many believe U.S. faces retirement crisis

Specifically, the question of whether or not retirement legislation should be a part of tax reform or stand-alone legislation was noted as an area of dissent in the report.

Nonetheless, the current retirement system, a “success story” as seen by the group, has “many clear shortcomings” identifiable to members of both parties.

Namely, the often-cited questions of increasing access to tax-deferred workplace plans, increasing participant and deferral rates, and addressing plan leakage were areas focusing the bi-partisan group’s attention.

On multiple-employer plans, the paper cites previously introduced legislation that would remove the existing “nexus” requirement for small business to pool assets into one plan.

As is, non-affiliated small businesses can pool participants and assets into one plan, but they must share an industry association, such as membership in a trade organization.

By removing that requirement, Congress could encourage more MEP participation from smaller businesses that don’t offer retirement plans, and promote more competition among providers to small plans.

The working group also is supportive of increasing the tax credit for small business that starts new qualified plans.

As is, a $500 tax credit for three years is offered to defray the costs of initiating a plan. Proposals by Sen. Orrin Hatch, R-UT, would up that to $5,000, and proposal from the White House would up the total tax credit to $4,500 for new plans, and an additional $1,500 credit for small employers with an existing plan that add an auto enrollment component.

Sen. Susan Collins, R-ME, and Sen. Ben Nelson, D-FL, have proposed legislation that would increase safe harbor employer matches to 10 percent, from 6 percent, and provide a new tax credit equal to the increased match.

In its paper, the bipartisan group did not recommend either specific proposal but endorsed their consideration.

They also recommend Congress consider extending plan enrollment to part-time workers, only 37 percent of whom have access to a plan, in part because existing law requires 1,000 hours of annual service to be eligible. A proposal from the White House would reduce the threshold to 500 hours for employees with at least three years of service.

The group also supports some portion of annuity payments in retirement to be excluded from retirees’ taxable gross income, though the paper did not suggest how much of annuity payments could be received tax-free.

Proposals to extend the period for which a hardship loan can be repaid should also be considered, to protect workers with outstanding 401(k) loans in the event they lose their jobs.

Also, the group supports allowing participants with a loan to continue contributing to retirement plans. Under current regulations, participants are prohibited from contributing to plans, and receiving matches, for six months after a loan is taken out.

The working group also supports consideration of proposals to increase the savers’ credit for contributions to tax-deferred retirement plans, and new legislation that would promote church-plan participation and encourage small businesses to offer employee stock option plans.

Instant Insights /

Retirement reforms proposed by bipartisan Senate group

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