January 29, 2014
- President Announces New 'MyRA' Retirement Plan, Continues Push for Auto-IRAs
- Collins-Nelson Retirement Bill Formally Introduced
- Commerce Department Urged to Maintain Retirement Plans' Access to Death Master File
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 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
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.