American Benefits Council
Benefits Byte

2014-006

January 29, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

Click here to read past issues on the Benefits Byte Archive page.

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President Announces New 'MyRA' Retirement Plan, Continues Push for Auto-IRAs

As has been widely reported, President Obama used the opportunity of the State of the Union speech on January 28 to announce an executive branch program to expand workplace retirement savings dubbed the “MyRA.”

The MyRA is being touted as a “starter savings account,” provided through employers and targeting individuals who do not already have access to an employer plan (although it could be offered in conjunction with an existing employer plan). Participation would be limited to households earning up to $191,000 annually (indexed for inflation according to the prevailing rules for Roth IRAs).

Participants would make after-tax contributions into a “Roth” IRA, which would hold U.S. government savings bonds. These bonds would be principal-protected, to ensure that participants’ account balances will not decrease. Participants would be guaranteed the same variable interest rate as the federal employees’ Thrift Savings Plan (TSP) Government Securities Investment Fund. 

Participation and contributions would be voluntary, and the initial investment could be as low as $25. Contributions as low as $5 could be made through payroll deduction, if available.        The vehicle is designed to be portable and participants can save up to $15,000, for a maximum of 30 years, in these accounts before transferring their balance to a private-sector Roth IRA. (The distribution and withdrawal rules would also follow the prevailing rules for Roth IRAs.)

The program is expected to be available to employers who volunteer to enter a pilot program and to their employees by the end of 2014. Because employers will neither administer the accounts nor make contributions, provision of the MyRA will not incur any fiduciary responsibility.

The Treasury Department issued a fact sheet and frequently asked questions document on January 29, with additional details and guidance to be provided by the Internal Revenue Service (IRS).

The president also endorsed the “Automatic IRA” initiative that has been part of his budget proposal for each of the last several years. As previously proposed, employers would be required to enroll employees who are not eligible for an employer-sponsored plan in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems. Employees would be permitted to opt-out if they choose. Small employers (ten employees or fewer) would be exempt, though they would also be en­titled to an additional credit of $25 per participat­ing employee — up to a total of $250 per year — for six years.

In a separate fact sheet summarizing all the State of the Union proposals, the president expressed an interest in working with Congress “to make sure that when we take steps to reform our tax code that we also reform upside-down retirement tax incentives.” This is an allusion to the common misperception that retirement tax incentives inure primarily to the benefit of highly compensated workers. The Council has consistently argued – supported by ample evidence – that these incentives have been successful at improving financial security for employees all along the income spectrum.

The Council will continue to be in close contact with senior IRS officials and will report back when additional information becomes available. For more information, contact Lynn Dudley, senior vice president, retirement and international benefits policy, Diann Howland, vice president, legislative affairs, or Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.



Collins-Nelson Retirement Bill Formally Introduced

On January 29, Senators Susan Collins (R-ME) and Bill Nelson (D-FL) formally introduced the Retirement Security Act of 2014 (S. 1970), strongly endorsed by the American Benefits Council.

As we reported in the January 27 Benefits Byte, the measure will address a broad range of defined contribution plan matters, including an alternative safe harbor for automatic enrollment and escalation contributions that has been promoted by the Council for several years. The provision would improve retirement savings adequacy in defined contribution plans by effectively raising the level of contributions.

The bill also eases certain restrictions on multiple employer plans (MEPs) and expands the availability of the Saver’s Credit. The Senators provided a summary in a January 29 news release and a preliminary summary, including a detailed discussion of the alternative safe harbor (prepared by Kent Mason of Davis & Harman, LLP), is available on the Council website.

The bill has been referred to the Senate Finance Committee, of which Nelson is a member. Collins is the ranking Republican member of the Senate Special Aging Committee. The Council will continue to work with the sponsors of the measure as it is considered by the Senate. A companion bill has not yet been introduced in the U.S. House of Representatives, although the measure shares some similarities with the Retirement Plan Simplification and Enhancement Act (H.R. 2117), introduced by Representative Richard Neal (D-MA) in 2013.

For more information, contact Lynn Dudley, senior vice president, retirement and international benefits policy, Diann Howland, vice president, legislative affairs, or Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.



Commerce Department Urged to Maintain Retirement Plans' Access to Death Master File

The Council, along with 14 other employer and retirement industry organizations, urged U.S. Commerce Secretary Penny Pritzker in a January 28 letter to provide retirement plans (and their service providers) with uninterrupted access to the Death Master Files (DMF).

The DMF is a list of deceased individuals maintained by the Social Security Administration and distributed through the Commerce Department. These records contain the full name, Social Security Number, date of birth, and date of death for listed decedents, updated weekly. Defined benefit and defined contribution retirement plans regularly use these files for administrative purposes, such as determining when benefits to a deceased participant should be terminated or when a payment should be made to a surviving beneficiary.

However, under the Bipartisan Budget Act enacted in December 2013 (and effective March 26, 2014), the Secretary of Commerce must restrict access to the information in each individual’s DMF for a three-year period beginning on the date of the individual’s death, except to persons who are certified under a program to be established by the Secretary of Commerce. Only parties that have “a fraud prevention interest or other legitimate need for the information and agree to maintain the information under safeguards similar to those required of Federal agencies that receive return information” may apply for certification.

The department’s National Technical Information Service (NTIS) clarified on January 6 that, pending establishment of a certification program, user access to the DMF will continue uninterrupted. The group letter further requests that retirement plans and their service providers be allowed ongoing access to DMF information while certification applications are pending. We will continue to monitor this issue and any response from the Commerce Department. For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

 



The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).