House Moves Ahead on Retirement Portions of Tax Reform 2.0

Mostly party-line House action this week included passage of the Family Savings Act, which features key provisions drawn directly from the popular Retirement Enhancement and Savings Act.

The U.S. House of Representatives this week easily advanced two of three core components of the GOP’s “Tax Reform 2.0” agenda.

The mostly party-line House action included passage of H.R. 6756, the “American Innovation Act of 2018,” which runs just 15 pages and calls for simplifications and expansions of tax deductions for start-up organization expenditures.

More directly relevant to the retirement industry is the passage of a second bill, H.R. 6757, or “the Family Savings Act.” As adopted, the bill includes many (but not all) of the provisions written into the popular Retirement Enhancement and Savings Act (RESA). At a high level, the Family Savings Act embraces RESA’s proposed endorsement of the open multiple employer plan (MEP) concept while shying away from addressing some of RESA’s solutions for easing the provision of lifetime income to qualified retirement plan participants. Notably, however, before the House passed the Family Savings Act, leadership added the Senate’s annuity selection safe harbor provision from RESA. 

Title I of the bill would allow for wider adoption of multiple employer plans, referred to here as “pooled employer plans.” Title I further seeks to ease the offering of safe harbor 401(k) plans, and it would adjust “certain taxable non-tuition fellowship and stipend payments treated as compensation for individual retirement account (IRA) purposes.” Other sections of Title I of the Family Savings Act seek to repeal the maximum age for traditional IRA contributions.

Title II of the Family Savings Act provides for certain technical modifications of nondiscrimination rules “aimed to protect older, longer service participants.” Likely of some interest to retirement industry stakeholders, Title II originally called for further “study of appropriate Pension Benefit Guaranty Corporation premiums,” but this was not included in the final bill.

After the successful passage of these two bills, the House will likely next turn to—and successfully pass—the third core component of Tax Reform 2.0, i.e., the more broadly focused and politically divisive “Protecting Family and Small Business Tax Cuts Act of 2018.” As the name suggests, this bill seeks to make permanent many of the temporary tax cuts implemented as part of the Tax Cuts and Jobs Act of 2017. Among other changes, under H.R. 6760, the near-doubling of the standard deduction would be made permanent, along with the doubled child tax credit and the 20% pass-through deduction for businesses.

Offering some helpful context, Kevin Walsh, associate with Groom Law Group, tells PLANADVISER this week’s House action indeed makes the likelihood of compromise retirement legislation seem more likely, “but it’s still about a coin toss.”

Walsh also points out that the House’s inclusion of the Senate’s annuity selection safe harbor provision from RESA makes the House’s preferred bill (Family Savings Act) even more similar to the Senate’s preferred bill (RESA), “and the two bills were already pretty similar already.”

“This could increase the Senate’s appetite for compromise legislation,” Walsh suggests.