January 27, 2015
White House Outlines Retirement Reform Proposals
In connection with President Obama’s State of the Union speech on January 20, the White House released a fact sheet previewing President Obama’s tax reform and budget proposals, including changes to certain retirement plan tax incentives.
President Obama has previously used the State of the Union speech to announce retirement proposals, including the 2014 unveiling of the myRA program, an executive branch program to expand workplace retirement savings. The U.S. Department of the Treasury formally launched the myRA program in December 2014 (see the January 5 Benefits Byte).
The latest release outlined new proposals with the stated goal of expanding savings opportunities for workers, paid for by “closing retirement tax loopholes for the wealthy.” The proposals would:
- Automatically enroll Americans without access to a workplace retirement plan in an Individual Retirement Account (IRA). Employers with more than 10 employees that do not currently offer a retirement plan would be required to automatically enroll employees in an IRA. Employees would have the option to opt out.
- Provide tax credits for auto-IRA adoption, as well as for small businesses that choose to offer employer plans or switch to auto-enrollment. Employers with 100 or fewer employees would receive a $3,000 tax credit for offering an auto-IRA. The proposal would also increase the existing “start-up” credit to $4,500 for small employers who begin offering a retirement plan. Additionally, small employers who already offer a plan and add auto-enrollment would get a $1,500 tax credit. These credits are intended to minimize administrative burdens on small employers.
- Expand access to employer-sponsored retirement plans for long-term, part-time employees. The proposal would require employers who offer retirement plans to allow employees who have worked at least 500 hours per year for 3 years or more to make voluntary contributions to the plan.
- Limit contributions to and accruals of benefits in tax-preferred retirement plans and IRAs. The President’s plan would limit contributions to and accruals of additional benefits in tax-preferred retirement plans and IRAs to “about $3.4 million,” under the rationale that “loopholes in the tax system have let some wealthy individuals convert tax-preferred retirement accounts into tax shelters.”
The Council released a statement expressing serious concerns about this proposal and calling the $3.4 million figure “misleading.” The Council noted that the proposal actually limits total retirement assets to the amount required to purchase an annuity, at age 62, of $210,000 per year. While in today's extremely low interest rate environment, this equates to about $3.4 million, using the historical interest rates the government uses for pension calculations, this would limit the allowable account balance for a 35-year old worker to about $300,000.
“Politically, it is convenient to target people who have saved $3.4 million. But the devil is in the details when you look at the impact on younger workers and the inevitability that interest rates will rise over the coming decades. Savings today are needed to ensure retirement security for years into the future. We must not erode long-term economic security for short-term revenue gains,” said Council President James Klein.
The proposals will be described in more detail when the President’s Fiscal Year 2016 budget is released in the next few weeks. It is unlikely that all the proposals will receive serious consideration in the newly Republican-controlled Congress.
As soon as the President formally unveils his budget proposal, we will update our chart summarizing the leading proposals to expand retirement coverage.
As we continue to engage policymakers on tax reform and the potential ramifications of dramatic changes in the retirement plan tax incentives, we welcome your participation and input. For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.
Preview of the 114th Congress
On January 6, the U.S. Senate and the U.S. House of Representatives swore in new members for the 114th Congress. Republicans now control both houses, with 54 Republicans and 44 Democrats (with 2 Independents, who align themselves with the Democrats) in the Senate and a 246-to-188 ratio of Republicans to Democrats in the House.
With the start of the 114th Congress, all Senate committees are now under new leadership as a result of the change in control and there have been significant changes in certain House committees as well. Below are some of the key changes.
With a new Republican majority, the Senate in the 114th Congress stands in stark contrast to its predecessor, though the Republicans lack the 60 members needed for a “supermajority” able to invoke cloture on a filibuster and thereby end debate and move to a vote. Regardless, the Republican control of the committees and the floor schedule gives them a much greater capacity to direct Senate actions.
Several significant changes within the committees are likely to affect employee benefit issues:
- Senate Finance Committee: Previous Ranking Member and now Chairman of the Finance Committee, Senator Orrin Hatch (R-UT), has consistently been vocal on the need to examine retirement policy and tax reform and has stated he will address these issues as chairman. Hatch has also had a strong interest of public plans as well as in the private sector and in expanding coverage. His bill, the Secure Annuities for Employee (SAFE) Retirement Act (S. 1270) [official summary], includes provisions facilitating greater use of electronic communication and automatic enrollment, automatic escalation and open multiple-employer plans (MEPs). (The Council expressed support for S. 1270 in a July 2013 letter to Hatch. The SAFE Retirement Act will be reintroduced in the 114th Congress.) As a high-ranking member of the Finance Committee for decades, Sen. Hatch also has been very influential on health benefit and health tax legislation.
Hatch recently released a report, Comprehensive Tax Reform for 2015 and Beyond, outlining several issues likely to come up in the effort to reform the tax code (see the December 16, 2014 Benefits Byte). Previous chairman Sen. Ron Wyden (D-OR) has taken over as the ranking minority (Democratic) member. Wyden addressed pension and retirement tax incentives in conjunction with tax reform during his tenure as chairman in a recent hearing, although he and Hatch share different views (see the September 16, 2014 Benefits Byte). Both Hatch and Wyden announced the launch of five bipartisan tax working groups within the committee on January 15 in an effort to facilitate congressional comprehensive tax reform (see the January 15 Benefits Byte). Senators Mike Crapo (R-ID) and Sherrod Brown (D-OH) will co-chair the Savings & Investment working group, which will examine retirement tax policy.
Other members of the Finance Committee who are likely to weigh in on employee benefits issues include Sen. Johnny Isakson (R-GA) on lifetime income options and Sen. Rob Portman (R-OH) and Sen. Ben Cardin (D-MD), who recently introduced the Retirement Security Preservation Act (S. 2855) to address the inadvertent harmful effects of ERISA’s nondiscrimination rules on defined benefit plans that exempt some or all of a plan’s existing participants from changes to the plan (see the September 23, 2014 Benefits Byte). The bill will need to be reintroduced in the 114th Congress.
Notable Finance Subcommittee on Health Care will be chaired by Sen. Patrick Toomey (R-PA), with Sen. Debbie Stabenow (D-MI) as Ranking Member.
- Senate Health, Education, Labor and Pensions (HELP) Committee: Sen. Lamar Alexander (R-TN) is the new chairman for the HELP Committee. The HELP committee has jurisdiction over the U.S. Department of Labor and shares oversight of the U.S. Department of Health and Human Services (HHS) and the Pension Benefit Guaranty Corporation (PBGC). Sen. Patty Murray (D-WA) will be the new ranking Democratic member. This committee was formerly chaired by Tom Harkin (D-IA), who retired at the end of the last Congress. Harkin had strong interest in retirement and introduced the Universal, Secure, and Adaptable (USA) Retirement Funds Act (S. 1979) during his tenure as chairman (see the January 31, 2014 Benefits Byte).
The provision to amend defined benefit plan “shutdown” procedures ERISA Section 4062(e), which became law as part of the Consolidated and Further Continuing Appropriations Act (H.R. 83), originated in the committee as S. 2511, a bipartisan bill to address the problem by ensuring that there is no 4062(e) event unless there is a substantial shutdown of operations at a facility relative to the size of the entire employer, ensuring (subject to certain exceptions) that there is no 4062(e) event unless employees lose their jobs, as opposed to going to work for another employer and significantly reducing the scope of an employer’s liability if there is a 4062(e) event (see the July 23 Benefits Byte).
The committee has also expressed interest in the recent lawsuits over employer wellness programs from the Equal Employment Opportunity Commission (EEOC). In a recent hearing, members of the committee criticized the agency for pursuing litigation in cases where no employee has complained of discrimination and before publishing guidance (see the November 17, 2014 Benefits Byte). The committee has already begun examining health care issues, with a recent hearing on the definition of “full-time” work under the Patient Protection and Affordable Care Act (PPACA) (see the January 23 Benefits Byte), but action on both topics will likely be pending for some time.
The chair for the committee’s Primary Health and Aging Subcommittee has not been named yet.
- Senate Budget Committee: New Chairman Sen. Mike Enzi (R-WY) is succeeding Sen. Patty Murray (D-WA), and Sen. Bernard Sanders (I-VT) is the new ranking Democratic member. Enzi previously served as Chairman and Ranking Member of the HELP Committee and has a good deal of expertise on employee benefit matters. It will be the Budget Committee’s responsibility to develop and enforce the annual concurrent resolution on the budget to serve as the framework for congressional action on spending, revenue and debt-limit legislation, which frequently involves unrelated revenue offsets.
- Senate Appropriations Committee: Sen. Thad Cochran (R-MS) is returning to the chairmanship of the Appropriations Committee after holding the gavel during the last Republican majority. The largest committee in the Senate, the Appropriations Committee writes the legislation that allocates federal funds to the numerous government agencies, departments and organizations on an annual basis. The committee can sometimes be used to respond to regulatory initiatives. Sen. Barbara Mikulski (D-MD) will serve as ranking Democratic member of the committee.
- Senate Special Committee on Aging: Sen. Susan Collins (R-ME) will be the special committee’s new chairwoman, with Sen. Claire McCaskill (D-MO) taking over as ranking Democratic member. This committee does not have authority to write legislation, but is a platform for bringing attention to issues affecting older Americans, such as health and retirement policy.
Collins, along with Sen. Bill Nelson (D-FL) on the Finance Committee, will likely reintroduce their bill, the Retirement Security Act of 2014 (S. 1970), in the 114th Congress. Last year, the bill was referred to the Finance Committee. S. 1970 is endorsed by the Council (see the January 29, 2014 Benefits Byte).
U.S. House of Representatives
The House continues to have a Republican majority, the largest since 1928. Below are some key changes in committee leadership that may affect employee benefit issues:
- House Ways and Means Committee: Representative Paul Ryan (R-WI) is the new chairman for the Ways and Means Committee, succeeding the retired Dave Camp (R-MI). The Ways and Means committee is the chief tax-writing body in the House and exercises jurisdiction over revenue and related issues. Certain revenue-related aspects of the Social Security system, Medicare and social services programs also come under the committee’s jurisdiction. Rep. Sander Levin (D-MI) remains the ranking Democratic member.
During his tenure as chairman, Camp introduced his tax reform proposal, the Tax Reform Act of 2014 (H.R. 1). As we initially reported in a February 26 Benefits Byte story, Camp released a discussion draft in an effort to further the dialogue on comprehensive tax reform. Camp later reintroduced the bill to serve as a possible starting point for tax reform discussions in the next Congress (see the December 12, 2014 Benefits Byte). Ryan has stated that tax reform is a priority for the committee and that Camp’s proposal will serve as a basis of the committee’s work on tax reform.
Previously, as Chairman of the House Budget Committee, Ryan outlined a budget proposal that was adopted as the House’s Fiscal Year 2014 budget resolution, House Concurrent Resolution No. 25. The proposal centered on structural changes to federal entitlement programs (Medicare, Medicaid and Social Security) and reductions in discretionary spending while eliminating as much as $4.6 trillion in unspecified tax expenditures to finance a reduction in tax rates. It also assumed full repeal of PPACA, projected to save $1.8 trillion over the next ten years, and contemplated $950 million over ten years through moderately increased PBGC premiums (see the October 23, 2013 Benefits Byte for more information).
Notable Ways and Means subcommittees include the Subcommittee on Health, with Rep. Kevin Brady (R-TX) as chairman, and the Subcommittee on Select Revenue Measures (which has jurisdiction over employee benefit tax incentives), led by Rep. Dave Reichert (R-WA).
- House Education and the Workforce Committee: Rep. John Kline (R-MN) is remaining as chairman and Rep. Bobby Scott (D-VA) will assume the role of ranking Democratic member. The committee has jurisdiction in education and labor matters generally and also has jurisdiction over the U.S. Departments of Labor, Education, Agriculture and Health and Human Services.
In the past, this committee has been active in addressing the solvency of multiemployer pension plans. The provisions permanently addressing the funding crisis threatening the multiemployer pension plan system in the Consolidated and Further Continuing Appropriations Act (H.R. 83) originated in this committee. They were added to the measure by Chairman Kline, who had consistently noted the critical condition of multiemployer pensions in a series of the committee’s congressional hearings (see the December 10, 2014 Benefits Byte). However, it’s likely that the provisions will be open for some amount of modification.
Rep. David P. Roe (R-TN) will continue to serve as chair for the committee’s Health, Employment, Labor and Pensions (HELP) Subcommittee.
- House Energy and Commerce Committee: The committee remains under the leadership of Rep. Fred Upton (R-MI), with Rep. Frank Pallone (D-NJ) taking over as the ranking Democratic member. Rep. Joe Pitts (R-PA) will continue as the chairman of the Subcommittee on Health.
The committee has been active in examining health care reform, and approved twomeasures last year addressing health care policy, including the Employee Health Care Protection Act (H.R. 3522), would essentially allow health insurance issuers to continue offering existing plans even if those plans do not meet certain minimum standards under the Patient Protection and Affordable Care Act (PPACA). The committee also explored health information technology in its 21st Century Cures series of hearings. (For more information, see the July 31, 2014 Benefits Byte.)
- House Budget Committee: Rep. Tom Price (R-GA) is taking over as chairman from Ryan. Price previously served as vice chairman of the committee, which is responsible for drafting an annual concurrent budget resolution that reconciles federal revenue and federal spending, as well as preparing guidelines in the annual budget resolution for cutting programs to meet spending targets. Rep. Chris Van Hollen (D-MD) will continue to serve as ranking Democratic member. Van Hollen has recently called for a financial transactions tax as a means of paying for a slew of tax perks for middle class families. This proposal is unlikely to pass the Republican-controlled chambers.
For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.