Bill Would Treat Child Care Expenses as Elective Deferrals

Add child care payments to the mix of items that policymakers are considering as a way to help individuals save for retirement in their DC plans. And 403(b) and 457(b) plan participants are among those whom the bill could affect.

 

Introduced Feb. 10 by Reps. Ann Wagner (R-MO) and Hakeem Jeffries (D-NY), the “Investing in Your Family’s Future Act” (H.R. 5837) would amend the Internal Revenue Code to permit the treatment of child care payments as elective deferrals for purposes of employer matching contributions for DC plans.

 

Qualified child care payments would be defined under the Code Section 21(b)(2) regarding expenses for household and dependent care services necessary for gainful employment, so long as the amounts do not exceed the 402(g) limits for the year reduced by the elective deferrals made by the employee.

 

The legislation also provides clarification on the application of the nondiscrimination rules, as well as safe harbors that deem the nondiscrimination rules are satisfied if matching contributions are made to a DC plan on behalf of an employee on account of a qualified child care payment.

 

Moreover, the legislation specifies that employer contributions made to a DC plan on account of a qualified child care payment shall be treated as a matching contribution if:

 

SIMPLE retirement plans, as well as 403(b) and 457(b) plans, would also be eligible for the matching contribution provision. As proposed, the legislation would be effective for contributions made for years beginning after Dec. 31, 2020.

 

“Raising a family is expensive and many parents sacrifice retirement contributions to afford child care expenses, so I teamed up with my colleague Congressman Jeffries to allow these workers to still receive an employer match in their retirement savings accounts,” Rep. Wagner stated in introducing the bill.

 

This legislation comes amid a broader push by policymakers to address overall financial wellness, particularly for those individuals just starting in their careers. Other initiatives that look to build off the existing DC system include legislation that would allow matching employer contributions for those workers who are making regular student loan payments, as if they were salary reduction contributions.