Retirement Security and Savings Act Re-Introduced

Senators Rob Portman (R-OH), and Ben Cardin (D-MD), have introduced the Retirement Security and Savings Act of 2021, legislation that was last introduced in 2019. This bill, like the Securing a Strong Retirement Act introduced in the House of Representatives earlier this month, is intended to build on the Setting Every Community Up for Retirement Enhancement Act (SECURE) of 2019. With more than 50 provisions, this bill contains a broad set of retirement reforms under the following categories, highlights of which are enumerated below.

Expanding Coverage and Increasing Retirement Savings

• Establishes a new automatic enrollment safe harbor with contributions starting at 6 percent in the first year and a three-tier rate of matching contributions on deferrals up to 10 percent of pay
• Provides for a special tax credit on the first 2 percent of pay to nonhighly compensated employees for employers that adopt the new safe harbor
• Makes the individual taxpayer’s saver’s credit refundable and would require that the credit be contributed directly to a Roth IRA or designated Roth in a qualified plan
• Reduces the long-term part-time threshold implemented under the SECURE Act from three consecutive years with at least 500 hours to two consecutive years with at least 500 hours
• Provides for a 60-day rollover to an inherited IRA for nonspouse beneficiaries
• Raises the RMD age to 75 in 2032
• Creates an additional catch-up contribution for those who have attained age 60 that is $10,000 for retirement plans that are not SIMPLE IRA or 401(k) plans, and $5,000 for SIMPLE plans and will be indexed with the cost of living
• Allows deferral of tax on gain from sale of employer securities to an ESOP

Preservation of Income

• Increases the maximum amount that can be funded to a qualifying longevity annuity contract (QLAC) to $200,000
• Directs the Secretary of the Treasury to update regulations to allow exchange-traded funds (ETFs) to be included in variable annuity products

Simplification and Clarification of Qualified Retirement Plan Rules

• Directs the Secretaries of the Treasury and Labor to adopt regulations outlining the consolidation of certain employee notices into a single notice
• Permits nonspouse beneficiaries to roll over assets to 401(k), 403(b), and 457 plans
• Allows contributions to SIMPLE IRA plans on a Roth basis
• Reduces the 50 percent penalty for late distribution of a required minimum distribution (RMD) to 25 percent
• Allows mergers of 401(a) and 403(b) plans
• Exempts retirement savers that have $100,000 or less in retirement assets from taking RMDs
• Reduces penalties for IRA excess contributions and the failure to take an RMD from an IRA if corrected timely, and removes requirements that, in case of a prohibited transaction, the IRA ceases to be qualified as an IRA and that assets are deemed to be distributed
• Creates a national retirement savings lost and found (including an online searchable database to reunite retirement savers with their savings), increases the cash-out limit to $6,000, and requires that unclaimed balances under $1,000 are transferred to the Pension Benefit Guarantee Corporation (PBGC)

Defined Benefit Plan Reform

• Clarifies that the variable interest crediting rate used as the projected interest crediting rate for cash balance plans is a reasonable projection subject to a maximum of 6 percent
• Eliminates indexing of PBGC variable rate premiums
• Reduces the overfunding threshold by which employers with overfunded pension plans may use a portion of the surplus assets to fund welfare benefits to the same population of retirees and extends provision through 2031

Reforming Employer Plan Rules to Harmonize with IRA Rules

• Synchronizes retirement plan rules to allow the exemption of Roth balances from RMD rules
• Allows plan participants to make charitable distributions
• Allows spouse beneficiaries to treat a deceased participant’s balance as their own in the plan
• Roth IRA amounts would be permitted to be rolled over to retirement plans

Plan Amendments

• Establishes an amendment deadline on or before the last day of the first plan year beginning on or after January 1, 2023 (2025 for governmental plans), and conforms the plan amendment dates under the SECURE Act, Coronavirus Aid, Relief, and Economic Security (CARES) Act, and Taxpayer Certainty and Disaster Tax Relief Act to these new dates