Budget deal retirement savings provisions

February 12, 2018

The Bipartisan Budget Act of 2018 (BBA 2018), the budget deal recently negotiated by Congressional leadership and signed into law by President Trump on February 9, 2018, includes provisions easing 401(k) hardship withdrawal rules and creating a bipartisan committee to address the multiemployer plan crisis.

Elimination of the 6-month contribution holdout rule for hardship withdrawals

Under current regulations, a participant who takes a 401(k) plan hardship withdrawal must be prohibited from making elective and employee contributions for 6 months. BBA 2018 instructs the Secretary of the Treasury to “delete” this rule.

Expansion of asset categories eligible for hardship withdrawals

BBA 2018 expands amounts that a participant may take on a 401(k) plan hardship withdrawal to include qualified nonelective contributions and qualified matching contributions and earnings, and earnings on employee 401(k) contributions.

In addition, the rule (under current regulations) that a participant must take all available plan loans before taking a hardship withdrawal is also repealed.

These changes to 401(k) hardship withdrawal rules were included in the House Republicans’ original version of tax reform but did not make it into the final bill. They effectively increase 401(k) plan liquidity, while allowing ongoing contributions after a hardship withdrawal.

Joint Select Committee on Solvency of Multiemployer Pension Plans

In 2017 we posted an article on the multiemployer plan financial crisis. In its most recent annual report, PBGC predicted that its multiemployer program “is likely to run out of money by the end of fiscal year 2025.” The situation for many multiemployer plans is equally (and in some cases, more) grim.

BBA 2018 establishes a special committee whose goal is “to improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation.”

The special committee is clearly a bipartisan effort. It will have 16 members, 8 from the Senate and 8 from the House, with (in each case) a 4/4 split between committee members appointed by Republican and Democratic leadership. And, the committee’s report and legislative proposal must be approved by both a majority of Republican members and a majority of Democratic members.

BBA 2018 sets a relatively tight schedule for consideration of this issue. The committee must produce proposed legislation by November 30, 2018. And there are rules for expedited consideration of any committee proposal by the Senate, including a requirement that the Senate act on any committee proposal “[n]ot later than the last day of the 115th Congress.”

Affect on single employer plans/sponsors

As a general matter, assets in PBGC’s single employer program cannot, under current law at least, be used to pay multiemployer program benefits. Thus the issue of the solvency of the PBGC multiemployer program does not directly affect single employer plan sponsors.

However, the single employer program is headed towards a surplus, largely because of increased (and increasing) premium income. And there has been at least one proposal to use assets from the single employer program to bail out the multiemployer program, Senator Sanders’ (I-VT) and Representative Kaptur’s (D-OH) Keep Our Pension Promises Act (KOPPA) proposal.

There are not a lot of obvious solutions to the PBGC multiemployer program crisis (and, more broadly, the multiemployer plan crisis) that don’t involve some sort of federal bailout. But many in Congress are very uncomfortable with the idea of a “taxpayer bailout” for these plans. Thus, it’s not out of the question that that committee may explore, e.g., using a possible single employer program surplus or (even) a merger of the two programs as solutions that do not involve spending general revenues.

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We will continue to follow this issue.

October Three Consulting, LLC is a full service actuarial, consulting and technology firm that is a leading force behind the reemergence of defined benefit plans across the country. A primary focus of the consultants at October Three is the design and administration of comprehensive retirement benefits to employees that minimize the financial risks and volatility concerns employers face.

Through effective plan design strategies October Three believes successful financial outcomes are achievable for employers and employees alike. A critical element of those strategies is the ReDB® plan design. The ReDefined Benefit Plan® represents an entirely new, design-based approach to retirement and to the management of both the employer’s and the employee’s financial risk, focusing on maximizing financial efficiency and employee value.

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