Last week, Ways and Means Committee Chairman Richard E. Neal (D-MA) and Ranking Member Kevin Brady (R-TX) introduced legislation to encourage saving for retirement. The bill, titled Securing a Strong Retirement Act, offers more than 30 changes to simplify and expand the use of different types of retirement accounts.
This proposal builds on the SECURE Act, last year’s retirement savings bill that was signed into law. Like last year’s effort, this bill does not include a comprehensive solution to remove the tax code’s bias against saving, such as universal savings accounts, but would make several smaller improvements and illustrates areas of bipartisan agreement. One noteworthy difference is that the SECURE Act was nearly revenue neutral due to severely restricting stretch IRAs (Individual Retirement Accounts).
This bill has several changes aimed at helping small businesses establish or expand retirement savings accounts for their employees. The existing credit to help small businesses offset the cost of starting retirement plans would be increased and a new credit would be offered to offset up to $1,000 of employer contributions for small businesses. The bill would expand the use of automatic enrollment in new retirement plans by moving to auto-enrollment and would increase incentives for small businesses to create retirement plans. The bill also includes several administrative changes, such as further expanding multiple employer plans, which allow small employers to band together to offer retirement savings plans.
The bill would also expand the Saver’s Credit. Under current law, the Saver’s Credit provides a credit worth 50 percent, 20 percent, or 10 percent of the amount of contributions a person makes to eligible retirement plans up to $2,000 ($4,000 for joint filers). The credit rate depends on the taxpayer’s adjusted gross income (AGI). The bill proposes increasing the income thresholds for credit rates and the maximum contribution eligible for the credit. For example, the maximum credit a single taxpayer can receive under current law is $1,000 ($2,000 married filing jointly) and the credit is completely phased out when AGI exceeds $32,500 ($65,000 married filing jointly); under the proposal, the maximum credit a single taxpayer could receive is $1,500 ($3,000 married filing jointly) and the credit would completely phase out at $60,000 ($100,000 married filing jointly). It should be noted that the proposed phaseout thresholds result in a slight marriage penalty.
Other changes in the bill include raising the age at which required minimum distributions must be taken from 72 to 75 and reducing the tax penalty for failing to take required minimum distributions. Additionally, taxpayers with under $100,000 in their 401(k) or IRA would not have to take required minimum distributions. Under current law, older individuals are able to make additional “catch-up” contributions to their retirement accounts above the regular contribution limits. These catch-up contribution limits for various types of retirement accounts would be increased for those aged 60 and above, and the limits would be indexed for inflation moving forward. The bill would also index the IRA catch-up contribution limit to inflation.
Finally, another notable change includes a provision designed to improve retirement savings of employees who are repaying student loans by allowing employers to make matching contributions to retirement accounts for employee student loan payments. This would essentially treat the employee’s student loan payment as an elective deferral.
The bill also includes a wide range of other provisions aimed at encouraging retirement savings. While falling short of comprehensively reforming the complex U.S. retirement savings system, the Securing a Strong Retirement Act offers another step forward to simplify and expand access to retirement savings accounts to more workers.
