Two bills introduced in the House of Representatives by Rep.Richard Neal, D-MA, would dramatically expand access to workplace retirement savings plans and providefor a more muscular automatic enrollment safe harbor.

|

The Automatic Retirement Plan Act of 2017 would require privatesector employers with more than 10 employees to offer a definedcontribution plan. Employers would not be required to contribute tothe plans. Non-compliance would be subject to an excise tax.

|

Related: Morningstar calls for IRA savingsmandate

|

According to the Bureau of Labor Statistics, only half ofAmericans that work for an employer with fewer than 50 employeeshave access to a workplace savings plan; 33 percent of Americansemployed by companies with 50 to 100 workers are without access;and nearly 20 percent employed at companies with 100 to 500 workersare without access.

|

Government employers, churches, and startups would be exemptfrom the requirement.

|

Employers with up to 100 workers would have as much as $5,000 intax credits for five years to cover the cost of planadministration.

|

Related: Time is now for 401(k)MEPS

|

The bill would also pave the way for Open Multiple EmployerPlans, which would allow employers with fewer than 100 workers topool assets under one plan. Employers in open MEPs would have no fiduciary liability—thatwould be borne by the plan provider.

|

Auto-IRA programs administered at the statelevel would supersede the federal mandate, so long as statelegislation was passed before enactment of the bill.

|

Under Rep. Neal’s proposal, employees would be automaticallyenrolled at a 6 percent of salary savings rate. If workers opt-out,or reduce their deferral, then employers would be required tore-enroll participants at 6 percent after three years.

|

Related: In Vermont, lawmakers opt for MEPretirement plans

|

Deferrals would automatically escalate 1 percent annually, untilparticipants reached a 10 percent savings rate.

|

At retirement, at least half of account values would bedistributed in an annuity.

|

Temporary employees, those under 21, those without citizenship,and those already in collectively bargained retirement plans wouldnot be required to be enrolled.

|

Retirement Plan Simplification and Enhancement Act of 2017

|

Neal’s second bill would amend the existing safe harbor forautomatic enrollment by eliminating the automatic escalation cap of10 percent.

|

The Retirement Plan Simplification and Enhancement Act wouldalso create a new auto-enrollment safe harbor, raising the 3percent deferral minimum to 6 percent.

|

The minimum default level would step up annually, increasing to7 percent in the second year of enrollment, until deferral rateshit 10 percent.

|

Employers would be required to make matching contributions tomeet the safe harbor.

|

A participant’s first 1 percent deferral would have to becompletely matched by employers. The next 5 percent deferral wouldhave to be matched at 50 percent, and the next 4 percent deferralwould have to be matched at 25 percent.

|

To address the new costs for employers under the proposed safeharbor, the bill would create tax credits for plans with fewer than100 participants.

|

The bill includes a host of other provisions. One would allowcontributions to traditional IRAs after age 70½ , similar to RothIRAs. And the required minimum distribution age for 401(k) would beincreased, ultimately to age 73 by 2029. Accounts with less than$250,000 would not require RMDs.

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.