Retirement policy update – August 2021

In this update we review the Senate HELP Committee Chairman Murray’s (D-WA) recently proposed Women’s Retirement Protection Act, the Senate Finance Committee Chairman Wyden’s (D-OR) Encouraging Americans to Save Act, and DOL’s recent _“_Temporary Implementing FAQs” with respect to required DC plan lifetime income illustrations, and note the nomination of Lisa Gomez to head DOL’s EBSA.

HELP Chairman Murray introduces Women’s Retirement Protection Act

On July 22, 2021, Senator Murray (D-WA), Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, introduced the Women’s Retirement Protection Act (WRPA).

The bill would, among other things, require spousal consent for certain distributions from DC plans generally exempt from the current spousal consent rules and reduce the required minimum service period for participation in 401(k) plans by long-term part-time employees.

Spousal consent requirement for defined contribution plans

WRPA would impose a spousal consent requirement on distributions from DC plans (not currently subject to such a requirement), subject to certain exceptions.

Generally, under the proposal a DC plan could not make a distribution (e.g., in the form of a lump sum) to a married participant, or designate or change such a participant’s beneficiary, unless: (1) the plan provides the participant an explanation of the rights of the participant and of the participant’s spouse with respect to the distribution; (2) the participant’s spouse consents in writing to the distribution or designation or change of beneficiary; (3)  that consent is witnessed by a plan representative or a notary public.

Exceptions to consent rules

No spouse: The consent requirements (other than the information requirement) do not apply where the participant establishes to the satisfaction of the plan administrator that: there is no spouse; the participant has not been married for at least one year; the consent cannot be obtained because the spouse cannot be located or requiring the participant to seek spousal consent is (for “exceptional reasons”) inappropriate; or such other circumstances prescribed by IRS.

Distributions to which consent requirement does not apply: Consent is not required with respect to:

(1) Required minimum distributions or distributions that may be made without the participant’s consent (e.g., where the benefit is not greater than $5,000).

(2) Distributions in the form of a qualified joint and survivor annuity, a qualified optional survivor annuity, a qualified preretirement survivor annuity, or a series of substantially equal periodic payments for the joint lives or life expectancies of the participant and the spouse.

(3) Where the participant does not elect one of the annuity/periodic payment alternatives in (2) (or the plan does not provide them), a distribution of the participant’s entire benefit with 50 percent of it transferred to an individual retirement plan of the spouse.

(4) Certain trustee-to-trustee rollovers (e.g., where the recipient plan is subject spousal consent rules or the spouse is the beneficiary under that plan).

There is a possibility that this proposed legislation may be amended to include a permanent waiver of the physical presence requirement under current IRS rules. (In this regard, see our recent article on IRS’s extension of its temporary waiver of the physical presence rule.)

This provision would be effective one year from date of enactment.

401(k) plan coverage of long-term part-time employees

WRPA also includes a proposed reduction in the 401(k) plan service requirement for “long-term part-time employees” (working more than 500 but less than 1,000 hours per year) from 3 to 2 consecutive years (similar to proposals in other retirement policy reform legislation being currently considered). The WRPA proposal includes a $10,000 per year/per employee penalty for failure to comply with this coverage requirement.

Senate Finance Chairman Wyden releases “Encouraging Americans to Save Act”

Also on July 22, 2021, Senator Wyden (D-OR), Chairman of the Senate Finance Committee, released the Encouraging Americans to Save Act (EASA), which includes a proposed new “Saver’s Matching Credit” and a new federal R-Bond (Treasury retirement bond) program.

Saver’s Matching Credit

The proposal would provide a tax credit (in effect, a federally funded “match”) for lower-income individuals who make qualified retirement savings contributions, equal to 50% of the contributions, with the match capped at $2,000. The 50% “match” is phased out, for a joint filer beginning at modified adjusted gross income of more than $65,000 and less than $85,000. 

For the 5-year period beginning after 2022 and ending before 2028, the available credit is increased by an additional 50% of contributions up to a maximum of $10,000 (for the 5-year period), as a “Coronavirus Recovery Bonus Credit.”

The credit would be made as a contribution to an applicable retirement savings vehicle elected by the individual. Where the individual does not make an election, an account would be established under the R-Bond Program (see below). Sponsors of qualified retirement plans may, but are not required to, accept these contributions, “but if the plan accepts any such contributions it shall accept them on a uniform basis.”

The credit goes into the savings vehicle on a “Roth” basis and is not subject to tax.

R-Bond Program

The bill would establish an “R-Bond Program” (somewhat similar to the Obama Administration’s MyRA program), administered by the Department of the Treasury, into which the Saver’s Matching Credit could (or in some circumstances, would) be invested. R-Bonds would carry an interest rate at the greater of the Federal Thrift Savings Plan’s (government securities) G Fund and the rate earned by a Series I United States savings bond.

DOL issues “Temporary Implementing FAQs” on lifetime income illustrations

On July 26, 2021, DOL issued four _“_Temporary Implementing FAQs” on its September 2020 interim final rule (IFR) on lifetime income illustrations. The FAQs clarify that:

1. Timing for plans that provide quarterly statements: Participant directed DC plans (which have to provide quarterly statements to participants) may provide the first (annually required) lifetime income illustration “on any quarterly statement up to the second calendar quarter of 2022 (ending June 30, 2022).”

2. Timing for plans that provide annual statements: Non-participant directed DC plans (which only have to provide annual statements) may provide the first lifetime income illustration for the plan year ending on or after September 19, 2021 (one year from publication of the IFR). Generally, this will be the statement for the 2021 calendar year, which must be provided no later than the date for filing the annual return for the plan – October 15, 2022 for a calendar year plan.

3. Use of alternative illustrations: While the IFR illustration methodology must be used, the IFR permits the use of additional illustrations.

4. Timing of further guidance/amendment of the IFR: While final action on the IFR was included in DOL’s regulatory agenda, timing of finalization remains unclear. Quoting the FAQs:

The Department intends to issue a final rule as soon as practicable based on feedback from comments received during the public comment period on the IFR. We appreciate the commenters’ concerns about the burdens and challenges that could arise if the Department issues a final rule that differs materially from the IFR without sufficient transition time for plan administrators to accommodate any changes from the IFR.

(We discuss the IFR in detail in our article DOL releases “interim final rule” on lifetime income illustrations.)

President Biden nominates Lisa Gomez to head EBSA

At the end of July 2021, President Biden announced the nomination of Lisa Gomez as the Department of Labor’s Assistant Secretary for Employee Benefits Security (EBSA) – the key DOL agency overseeing private retirement plans. Ms. Gomez is currently a partner in the law firm Cohen, Weiss and Simon LLP, a firm that, quoting their website, is “devoted exclusively to the interests of labor and working people.”

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We will continue to follow these issues.