With the clock running out on the Congressional legislative session, hopeful lobbyists and policy experts are hailing the retirement provisions in House Ways and Means Chairman Rep. Kevin Brady’s Tax Reform 2.0 a good first step toward retirement reform in 2019.
The Family Savings Act—one of three bills in Rep. Brady’s tax reform package—would create a new, flexible universal savings account and lifetime plan income portability and repeals the maximum cut-off age for traditional IRA contributions. A highlight of the bill is that it would make it easier for multiple employers, including independent contractors, to band together to create retirement plans, or as the bill refers to them “pooled employer plans.”
Rep. Brady’s “bill is consistent with President Trump’s recent executive order in that it encourages small employers to join together to take advantage of economies of scale to offer workplace retirement plans,” American Council of Life Insurers President and CEO Susan Neely. “This could go a long way to helping the 16 million independent contractors in the gig economy. Many of these independent contractors work for small employers who often lack the resources to offer retirement plans to their employees on their own,” Neely said.
“The retirement security provisions address some key challenges facing retirement savers, which include saving enough for retirement and ensuring retirement savings can last a lifetime,” Neely said. “More needs to be done by Congress, but Chairman Brady’s initiative represents a good first step.”
Advisors also welcome changes that would make it easier for small business owners to offer pooled employer retirement plans. “We have found that simpler, easier and cheaper has been a winning formula for some business owners,” said Ashley Folkes, an advisor with AXA Advisors in Scottsdale, AZ. “Pooling could create less liability and more access.”
The legislation, if passed, could pave the way for mutual fund companies, banks and insurers to develop and offer multiple-employer plans that unrelated employers could use to cover their employees. The financial services companies would handle administrative burdens such as plan design, investment options and administrative paperwork, which often scare off small employers.
Small employers would be tasked with gathering employee contributions through payroll deduction and sending them to such plans.
That’s the good news. The bad news is that with the 2018 Congressional session set to end in late October, it remains unlikely that the full House, let alone the Senate, will be able to pass the bill before mid-term elections. Still, financial services lobbyists are hailing the bill as a sign of more broad-based retirement legislation to come in 2019, provided the GOP retains control of the house.
“It’s late in the season to pass legislation,” said a lobbyist for the advisor industry. “The idea is to start building now and pick up the momentum for next year. Although who knows who will be in charge of the House next year.”
Lobbyists are already taking aim at expanding the new universal savings accounts in the legislation, which would allow taxpayers to contribute up to $2,500 a year.
Fund companies and others want taxpayer contribution limits to be increased to $10,000. Withdrawals would be tax free and not reserved strictly for retirement.
The universal savings accounts would create “a fully flexible savings tool that families could use any time,” Brady said.
The legislation would also allow families to access their retirement accounts penalty-free for new child expenses capped at $7,500, with the ability to replenish those accounts in the future.