FY 2024 Budget Includes Proposed Modifications to Retirement Plans
On March 9, 2023, the Administration released its Fiscal Year 2024 Budget. The related General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposals [1] included a description of “modifications to rules relating to retirement plans” consistent with, for the most part, proposals that were, at one point, part of the Administration’s 2021 “Build Back Better” proposal. These include a proposed $10-$20 million cap on retirement account accumulations, plan sponsor reporting on account balances of more than $2.5 million, and the elimination of certain “Roth conversions,” for certain high-income taxpayers (e.g., joint filers with income over $450,000). While action on these initiatives is not expected this year, targeting large retirement account balances has some populist appeal, has had the support of a number of policymakers for some time, and is likely to persist beyond the next election.
More State-Mandated Plans in Sight for Businesses Without Retirement Plans
Minnesota, Missouri and Vermont have become the latest states to pass legislation mandating state-sponsored retirement plans for employees without access to plans in the workplace. Most states have at least considered offering state-sponsored retirement plans, with 10 states having active programs. Only four states are hold outs: South Dakota, Alabama, Florida and Alaska. But businesses without a retirement plan do not need to be forced into an ill-fitting, state-mandated plan considering the new and enhanced plan designs available, plus increased plan startup tax credits for those firms that qualify. See RLC’s Case of the Week Sweeter Deal Awaits Small Businesses When Starting a Workplace Retirement Plan [2] on plan startup tax credits.
Retirement Savings for Americans Act (S 5271) Would Create Government-Run Plan
Congress is poised to re-introduced a bill similar to the Retirement Savings for Americans Act (S 5271) [3] of 2022. If the bill is resurrected for 2023, it would establish a new savings program, “The American Worker Retirement Plan” (AWRP) that would give eligible workers access to federally-sponsored, portable, tax-advantaged retirement savings accounts. Key features of the AWRP are described below.
- Available to full and part-time workers without access to an employer-sponsored retirement plan.
- Automatic enrollment at 3% of income, with the ability to increase or decrease the deferral rate or opt out.
- Independent workers would also be eligible.
- Low- and moderate-income workers would be eligible for a federal 1% automatic contribution (as long as they remain employed) and up to a 4% federal matching contribution via a refundable federal tax credit, phased out for those with income above certain levels.
- Accounts would remain attached to workers throughout their lifetimes, and workers would be able to stop and start contributions at will.
- The accounts would be the property of the worker and the assets could be passed down to future generations to help them build wealth and financial security.
- Participants would be given a menu of simple, low-fee investment options to choose from, including lifecycle funds tied to a worker’s estimated retirement date, or index funds made of stocks and bonds.
While the provisions in the bill have bipartisan support, there is some skepticism in the industry as to whether a government-run retirement savings plan would be in the best interest of investors. Even more reason for business owners who do not offer a retirement plan to consider sponsoring their own workplace retirement plans now, before a federally-mandated plan takes form.
Bill Would Allow 403(b)s to Invest in CITs
The newly introduced Retirement Fairness for Charities and Educational Institutions Act of 2023 (HR 3063) [4] would amend current securities laws to fully clear the way for 403(b) plans to invest in collective investment trusts (CITs). The SECURE Act of 2022 amended tax laws in the Internal Revenue Code to allow 403(b) plans to use CITs but stopped short of making similar accommodating changes to securities laws. The bill has been referred to the House Committee on Financial Services.
Changes to Key Retirement Policy Congressional Committees
In the Senate, Bernie Sanders (I-VT) has taken chairmanship of the Senate Health, Education, Labor, and Pensions (HELP) Committee from Patty Murray (D-WA). Dr. Bill Cassidy (R-LA) is now Ranking Member. We note that longtime committee member and retirement policy advocate Rob Portman (R-OH) has retired and that his bi-partisan partner in many retirement policy initiatives, Ben Cardin (D-MD), has announced his retirement at the end of his current term. Senators Ron Wyden (D-OR) and Mike Crapo (R-ID) will continue as Chairman and Ranking Member of the Senate Finance Committee.
In the House, Rep. Virginia Foxx (R-NC) has taken over as Chairwoman of the House Education and the Workforce Committee, and Bobby Scott (D-VA) has now become Ranking Member. Rep. Jason Smith (R-MO) has taken over Chairmanship of the Ways and Means Committee, and former Chairman Rep. Richard Neal (D-MA) has now become Ranking Member.