Bipartisan bill in Senate would make fiduciaries of service providers to Open MEPs
Four new bills introduced in upper chamber as House preps retirement in ‘Tax Reform 2.0.’
Two Republicans and two Democrats in the Senate have introduced four new bills aimed at expanding access to workplace retirement plans and incentivizing Americans to save more.
One bill, the Small Business Employees Retirement Enhancement Act, appears to model a provision in the Retirement Enhancement Security Act that would make it easier for small business owners to join Open Multiple Employer Plans. RESA passed unanimously out of the Senate Finance Committee in 2016, and a companion bill in the House was introduced earlier this year.
Related: Participants and HR will love the MEP 401(k)
Text of the new bill in the Senate has not been published, but a summary published by BPC Action, an arm of the Bipartisan Policy Center, said the legislation “transfers some of the fiduciary responsibility from the employer to the pooled plan provider, lessening the legal risk to small businesses” when they participate in MEPs.
Another bill, the Retirement Security Flexibility Act, would incentivize wider adoption of automatic enrollment and escalation features in plans that currently don’t offer the features. It would also give “flexibility” to small employers’ contribution requirements if they implement automatic features in the retirement plans they sponsor, according to BPC Action’s summary.
Automatic enrollment is widely acknowledged as a plan feature that vastly improves participation rates among employees when they are offered a plan.
But most small businesses that sponsor a retirement plan have yet to adopt the feature. Among plans with less that $20 million in assets serviced by Vanguard, only 15 percent automatically enroll workers.
Larger plans serviced by Vanguard auto enroll at a 46 percent clip. Research from the money manager’s record keeping unit shows 92 percent of workers participate in plans when they are automatically enrolled, compared to just 57 percent when they are required to opt in on their own.
Two other bills–the Strengthening Financial Security Through Short-Term Savings Act and the Refund to Rainy Day Savings Act—are designed to incentivize saving outside of retirement plans by allowing employers to automatically enroll workers in emergency savings accounts and giving workers the option to commit tax refunds to savings accounts.
Each bill includes components of recommendations by the Bipartisan Policy Center’s Commission on Retirement Security, which were released in 2016.
The introduction of the bills come as the House of Representatives is crafting separate retirement legislation in accord with “Tax Reform 2.0,” an initiative by House Republicans to make permanent the cuts to individual tax rates passed in the Tax Cuts and Jobs Act last December.
The lower individual rates are scheduled to sunset in 2025. The Congressional Budget Office has already cautioned that making the individual cuts permanent would significantly impact deficits. Extending the tax cuts would require 60 votes in the Senate; no Democrats voted for the TCJA in December.
It’s unclear if the fate of retirement reforms in the House will be tied to Republican hopes to extend the cuts to the individual tax rates. Rep. Kevin Brady, R-TX, chair of the House Ways and Means Committee, told a media pool at the White House this week that the House will vote on the tax and retirement bills by early September. Text of the bills is expected in August.