Are Changes Ahead for Workplace Retirement Accounts?Submitted by Alloy Silverstein Financial Services, Inc. on September 27th, 2018
A bill now in Congress proposes to alter some longstanding rules.
Most Americans are not saving enough for retirement, despite ongoing encouragement to do so (and recurring warnings about what may happen if they do not). This year, lawmakers are also addressing this problem, with a bill proposing big changes to IRAs and workplace retirement plans.
The Retirement Enhancement and Savings Act (RESA), introduced by Senator Orrin Hatch, would amend the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA) in some significant ways.1
Contributions to traditional IRA accounts would be allowed after age 70½. Today, only Roth IRAs permit inflows after the owner reaches this age.2
An expanded tax break could lead to more multiple-employer retirement plans. If small employers partner with similar companies or organizations to offer a joint retirement savings program, the RESA would boost the tax credit available to them to offset the cost of starting up a plan. The per-employer tax break would rise from $500 to $5,000. A multiple-employer plan could be attractive to small companies, for it might mean lower plan costs and administrative fees.2
Portions of federal tax refunds could even be directed into workplace plans. The RESA would allow employees to preemptively assign some of their refund for this purpose.2
Retirement income projections could become a requirement for plans. Not all monthly and quarterly statements for retirement accounts contain them; the RESA would make them mandatory. It would oblige financial firms providing investments to employer-sponsored plans to detail the amount of cash that the current account balance would generate per month in retirement, as if it were fixed pension income. Plans might also be permitted to offer insurance products to retirement savers.2,3
A new type of workplace retirement account could emerge if the RESA passes. So far, this account has been described vaguely; the phrase “open-ended” has been used. The key feature? Employees could take loans from it without penalty.2,3
Whether the RESA becomes law or not, the good news is that more of us are saving. In the 2016 GoBankingRates Retirement Survey, 33.0% of respondents said that they had saved nothing for retirement; in this year’s edition of the survey, that dropped to 13.7%, possibly reflecting the influence of auto-enrollment programs for workplace plans, the emergence of the (now absent) myRA, and improved economic ability to build a retirement fund. (In the 2018 edition of the survey, the top reason people were refraining from saving for retirement was “I don’t make enough money.”)4
Could the RESA pass before Congress takes its summer recess? Good question. Senate and House lawmakers have many other bills to consider and a short window of time to try and further them along. The bill’s proposals may evolve in the coming weeks.
Ronald Donato, CFP®, MBA may be reached at 856.667.6228 or RDonato@asfinancialservices.com.
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1 - congress.gov/bill/115th-congress/senate-bill/2526 [7/3/18]
2 - fool.com/retirement/2018/07/22/heres-what-the-proposed-retirement-savings-changes.aspx [7/22/18]
3 - marketwatch.com/story/proposed-changes-to-your-401k-retirement-plan-could-be-promising-or-not-2018-07-18 [7/18/18]
4 - gobankingrates.com/retirement/planning/why-americans-will-retire-broke/ [3/6/18]