The Family Savings Act does not provide an annuity selection safe harbor for employers, a provision included in the Retirement Enhancement Savings Act (RESA), a separate and more comprehensive bill that has been introduced in both the House and Senate. (Photo: Shutterstock)

The Family Savings Act of 2018 passed out of the House Ways and Means Committee on a 21 to 14 party-line vote.

The bill now moves to a full floor vote with two other bills packaged under Tax Reform 2.0., currently scheduled for October 1.

Each bill would need 60 votes in the Senate to pass. It is unclear if the Senate would take the measures up before the mid-term elections.

The Family Savings Act includes 17 provisions designed to provide incentives for wider adoption of workplace retirement plans among small and midsized businesses, relaxes restrictions on contributions and mandatory withdrawals from IRAs, and creates a new savings vehicle, Universal Savings Accounts, which allows savings up to $2,500 a year to grow tax free.

It would add $20.97 billion to the deficit over the 10-year budget window extending from 2019 to 2028, according to estimates from the Joint Committee on Taxation.

The cost of the bill was originally offset by several pay-fors, including one provision that would have eliminated so-called stretch IRAs, which preserve the tax-deferred status of the accounts when inherited by a non-spouse beneficiary. But the pay-fors were removed from the bill, according to testimony before the Ways and Means Committee on Wednesday.

No love for annuities

The bill deconstructs existing barriers for employer participation in Multiple Employer Plans, which allow groups of employers to pool workers under one 401(k) plan to achieve economies of scale and reduce individual employer's fiduciary exposure. The provision has bipartisan support in the Senate.

And it allows retirees to continue to invest in IRAs after age 70 ½ , and eliminates required minimum distributions from qualified retirement accounts with less than $50,000 in assets.

One provision addresses the portability of annuities offered through 401(k) plans by ensuring income guarantees are protected when an employer switches recordkeepers that don't provide a platform for annuities. The lack of annuity serviceability across recordkeeping platforms is believed to discourage wider adoption of annuities in 401(k) plans.

But advocates for insurance companies and lifetime income products bemoan the Family Savings Act for not going far enough to promote wider adoption of annuities in 401(k)s.

“We believe it is critical that retirement security legislation must include provisions to increase access to lifetime income options in workplace retirement plans, lifetime income disclosures on benefit statements so workers can gauge what their monthly retirement income might be and, enhanced retirement plan auto-enrollment to boost employee participation,” said Cathy Weatherford, the outgoing president and CEO of the Insured Retirement Institute, in statement. IRI represents the interests of insurance companies.

The Family Savings Act does not provide an annuity selection safe harbor for employers, a provision included in the Retirement Enhancement Savings Act, a separate and more comprehensive bill that has been introduced in both the House and Senate.

Susan Neely, president and CEO of the American Council of Life Insurers, said the bill “falls short” of addressing retirement savers needs.

“The House of Representatives can—and should—do more to help Americans preparing for retirements that could last 20 years, 30 years or longer. It can do this by making it easier for employers to offer annuities in their retirement plans. Annuities can guarantee lifetime income for workers,” said Neely in a statement.

Democrats claim USAs a tax shelter for wealthy

During Wednesday's mark-up of the three bills under Tax Reform 2.0, most of the debate was reserved for the Protecting Family and Small Business Tax Cuts Act, which would make permanent the cuts to individual rates delivered by last year's Tax Cuts and Jobs Act.

The JCT estimates that would add another $630.9 billion to the debt in the 10-year budget window.

But Rep. Lloyd Doggett, D-TX, did push back on the Family Savings Act's provision on USAs, claiming they would favor only wealthy Americans.

“The only problem with this bill—it is designed to help those that are already in much better shape,” said Doggett, citing data that two-thirds of existing retirement tax incentives go to the top 20 percent of earners.

“Republicans are intent on designing a savings account proposal to help those who already have the most,” he added. “Universal Savings Accounts would be a universal tax shelter for those at the top.” Doggett cited data claiming USAs would be used by those earning twice the country's medium income.

“If the goal here is to spend $21 billion, why don't we target relief toward those individuals who need the greatest amount of assistance. They have been totally left out of this piece of legislation.”

Supporters of USA's favor the model because it addresses the double taxation on investment gains on earnings that have already been taxed.

Critics claim the wealthiest 1 percent of Americans would move money from taxable accounts to USAs. Households in the top 1 percent hold an average of $9.4 million in taxable accounts, according to the Center on Budget and Policy Priorities, a left-leaning think tank. Household in the top 20 percent have an average of $420,000 in taxable accounts.

But the provision on USAs in the Family Savings Act restricts full rollovers from outside savings vehicles. And only $2,500 could be invested in the accounts annually.

– Read more at BenefitsPRO:

• 4 retirement reform bills you need to know about
• Can Open MEPS close the access gap with small employers?