A Capital View of the State of the Industry

American Retirement Association CEO Brian Graff and a panel of industry experts offered their insights on Feb. 23 on the state of things for the industry regarding activity on Capitol Hill, as well as in the federal regulatory agencies. They made their remarks as part of the NTSA Winter Virtual conference. 

On the Hill 

Graff expressed concern over the inclusion of the Butch Lewis Act in the current COVID relief bill. That provision would entail a bailout for certain multiemployer plans and funding relief for single-employer DB plans. Due to budget reconciliation rules, it also calls for a COLA freeze on DC and DB annual contribution and benefit limits, as well as a COLA freeze on the annual compensation limit. The freezes would become effective in 2030 as a way to pay for the “out years”; collectively bargained plans would be exempt. “We’re very concerned,” Graff said, that the measure would entail treating retirement plans as a source of revenue to pay for other provisions.

The Automatic Retirement Plan Act (ARPA) could be part of a second budget reconciliation measure this year, Graff said, noting that it is a “priority” for House Ways & Means Committee Chairman Richard Neal (D-MA). Under this legislation, employers with 10 or more employees that do not offer a retirement plan would have to offer an automatic enrollment IRA or 401(k). 

The Encouraging Americans to Save Act, Senate Finance Committee Chairman Ron Wyden’s (D-OR) companion to the Automatic Retirement Plan Act, also could be part of a second reconciliation bill, Graff said. That measure would change the current Saver’s Credit to effectively create a government matching program for moderate income workers; among its provisions would be reinstating the MyRA as a default mechanism. Graff suggested to attendees that if enacted, such a measure would expand what they could cite as savings opportunities. 

The possible provisions in tax plans, however, are not as sunny a prospect, Graff indicated, and noted that the administration may pursue a financial transaction tax. In addition, he noted, the administration may propose equalizing DC plan tax benefits across the income scale, and would replace the current exclusions and deductions with a flat tax credit. Graff said that the ARA is concerned that reduced tax incentives for small business owners could make them less likely to make matching and other employer contributions—or even worse, less likely to offer a plan at all.

Further action concerning environmental, social and governance (ESG) is possible this year as well, Graff said. Among the steps that could be taken are a mandate to offer ESG to 401(k) participants, as well as ESG disclosure requirements. He noted that there is increased interest on Capitol Hill concerning cybersecurity and that he expects hearings to be held on the matter. And he said it is possible that there may be refinements to the now-confirmed prohibited transaction exemption (PTE) for investment advice fiduciaries, as well as a revisiting of 5-part test.

At the Agencies 

A panel moderated by PenServ President Susan Diehl looked a several regulatory developments of great interest to the NTSA, its members and those whom it serves. 

Required Minimum Distributions. Diehl reminded attendees that the age at which required minimum distributions (RMDs) must take place has increased from age 70½ to age 72 for all plans beginning in 2020. This means, she said, that age 72 applies to those who were born after June 30, 1949, and age 70½ applies to those who were born before July 1, 1949. 

The changes are especially important concerning the death distribution rules, Diehl said. They generally are effective for death distributions required to be made after Dec. 31, 2019 for individuals who attain the RMD age after that date. There are some exceptions, she noted: 

• those who attained age 70½ before 2020 continue to receive distributions as before; 
• for collectively bargained plans, the date is the earlier of: (1) the later of either the date of the last collective bargaining agreement or Dec. 31, 2019; or (2) Dec. 31, 2021;
• there are special rules for existing qualified annuity contacts when the contract has been annuitized or the participant made an irrevocable election before the enactment of the SECURE Act; and 
• governmental plans defined under Internal Revenue Code Section 414(d)—which includes 403(b), 457(b) and 401(a) governmental plans.

Diehl also stressed the importance of the death distribution rules. Under those rules, she said, eligible designated beneficiaries include:

• a surviving spouse;
• children under the age of majority;
• disabled persons as defined by Code Section 72(m)(7);
• chronically ill Individuals as defined by Code Section 7702B(c)(2); and 
• an individual who is not more than 10 years younger, which Diehl said is overlooked in many cases. 

It’s very important to know who eligible designated beneficiaries are, Diehl emphasized. 

Distributions. The SECURE Act, signed into law Dec. 20, 2019, amended the Internal Revenue Code to allow distributions to help pay for child birth and adoptions, reminded James Kelleher, Chief Operating Officer and Co-Owner of Carruth Compliance Consulting. The distributions: 

• must be taken within one year of the event;
• can amount to $5,000 per child per parent; and  
• can be repaid. 

Allowing such distributions is optional, Kelleher said. Financial Institutions do not report repayments unless they go into an IRA, and repayments are reported in the federal income tax return in Box 14 a & b with a Code “BA.” Kelleher noted that when such a distribution is taken, one must document a birth, but not the expenses incurred. 

And under the CARES Act, enacted in March 2020, distributions may be made from a retirement plan account related to the Coronavirus and its effects. Repayments may be made over three years, and could start beginning Jan. 1, 2021.  

IRS Audits. Ed Salyers, a longtime IRS employee who started his own CPA firm, outlined for attendees the challenges the IRS must overcome in conducting audits. They include auditors working remotely and difficulties in communicating with taxpayers and their representatives, but he said there also is something more. “What the IRS is really facing is a loss of institutional knowledge,” Salyers said. 

The IRS is trying to figure out a way to link forms together to better find errors, Salyers remarked. He also told attendees that the IRS is going to be looking for excess contributions to 457(b) plans, and that there are new people at the IRS examining 403(b)s and 457(b)s—and one “has to contend with this.” 

And because of the pandemic, Salyers said, there will be no in-person audits until June 2021, adding, “I wouldn’t be surprised if that is extended.”