401(k): House Passes Some 401(k) Plan Reforms

On Thursday and Friday, September 27 and 28, the U.S. House of Representatives passed three separate Republican-sponsored bills that collectively form major follow-up tax legislation (dubbed “Tax Reform 2.0”).  Collectively, the three bills contain a number of 401(k)-related provisions, most of which mirror the proposals that we have been reporting about throughout the spring and summer of this year.

For example, one of the combined proposal’s retirement-related provisions is identical to the bipartisan Retirement Enhancement Security Act (“RESA”) proposal introduced earlier this year in the Senate Finance Committee.  Among other things, RESA would create “multiple employer retirement plans,” or MEPs, which would permit unrelated companies to jointly offer 401(k) plans.  MEPS would enable multiple companies to rely on a single plan document and one set of plan-related paperwork (governmental filings, etc.), thereby allowing the sponsoring companies to pool many of the administrative expenses. The RESA provisions, initially excluded from the Tax Reform 2.0 package, were added by an amendment to one of the House bills late Wednesday.

The combined legislation reportedly also includes a 401(k) plan annuitization provision that would allow participants to convert all or part of their account balances into a stream of income.  Employers meeting a regulatory “safe harbor” meeting certain requirements when choosing an annuity provider would receive some fiduciary liability protection.

In its present form, Tax Reform 2.0 would also remove the 70½ age limit for making contributions to traditional IRAs, and would reportedly exempt individuals having less than $50,000 in their 401(k) plan accounts from taking “required minimum distributions,” which currently begin at age 70½.  It also would allow families to withdraw up to $7,500 per year, penalty-free, from 401(k) plan accounts to cover costs related to a new child, whether by birth or adoption.

Despite passage by the House, Senate Majority Leader Mitch McConnell is unlikely to let allow Tax Reform 2.0 to come up for a vote on the floor of the Senate before the November 6th elections.  Plus, it’s no secret that Washington has been preoccupied with a number of other newsworthy matters hitting the news almost daily.  Nevertheless, we are hearing that some proposed changes to 401(k) plans could still be considered later in the year (depending on the election outcome).  As always, we will be keeping abreast of these fast-moving developments.