The year of 2018 saw significant legislative efforts within the retirement planning space. In all, seven bills were introduced, including one by the Senate known as the Retirement Enhancement and Savings Act of 2018 (RESA). That same year, an identically named bill was likewise introduced by Republicans in the House of Representatives. And in 2019, the House reintroduced that same bill, renaming it the Retirement Enhancement and Savings Act of 2019. Although neither bill has yet to pass, the collective provisions proposed aim to help Americans save their retirement dollars in a myriad of ways.
- In 2018, both the U.S. House of Representatives and the Senate authored bills identically named the Retirement Enhancement and Savings Act of 2018 (RESA).
- RESA aims to stimulate Multi-Employer Pension Plans (MEPs), where small companies can more easily band together to reduce the administrative costs of retirement plans, to increase their employees' investment returns.
- RESA provisions would encourage 401(k) plans to incorporate annuities into their portfolios, by shielding the 401(k) plans from litigation, should the annuity providers fail.
Improve Multi-Employer Pension Plans (MEPs)
MEPs let small companies band together to reduce administrative costs and ultimately increase investment returns for their respective employees. Currently, for companies to jointly participate in MEPs, they must share a thematic connection, such as operating in the same industry. RESA seeks to eliminate this requirement.
Facilitate 401(k) Plan Annuities and Annuity Information
Although traditional pension plans are currently allowed to offer annuity options, many decline to do so, because even though annuities potentially create lifelong income streams for employees, they also present significant downsides. Not only do they charge high fees, but annuity insurers have high failure rates that may jeopardize a participant's income. If this were to happen, 401(k) plans that include annuities as part of their underlying investment holdings could become vulnerable to lawsuits. Many plans avoid inclusion of annuities, for this very reason. But certain RESA provisions would protect 401(k) plans from lawsuits in the event that an annuity provider goes under or fails to satisfy its investment mandate. By encouraging annuity consumption among 401(k) plan participants, RESA aims to promote increased retirement savings. (For more see: Should Your 401(k) Be In An Annuity?)
Expand Tax Credits to Offset Costs of Starting and Amending a Retirement Plan
Companies presently receive a $500 tax credit for each new 401(k) or SIMPLE IRA plan they initiate for an employee. RESA would spike this credit to $5,000--a whopping 900% increase. The provision would further entitle companies that offer automatic re-enrollment in established plans, an additional annual $5000 credit for up to three years. (For more see: Tax Credit for Plan Expenses Incurred by Small Businesses)
Create Retirement Savings Incentives for Graduate Level Students
One section of the bill would let graduate and postdoctoral students treat certain taxable non-tuition fellowship or stipend payments as compensation, for IRA purposes. This would increase the contributions students could make to their own IRAs. Currently, taxable non-tuition payments are not considered income.
Create A New Family-Friendly Universal Savings Account (USA)
The proposed Universal Savings Account (USA) would incentivize families to start saving for retirement sooner by allowing them to withdraw their cash in case of emergencies. Similar to Roth-style savings accounts, USAs would grow tax-deferred and would levy no penalties on withdrawals made at any time, for any reason.
Provide A New Infant Savings Plan Option
This provision would let families access retirement funds without penalty, upon the birth or adoption of a new child. Funds could be returned to the accounts at some future point. It is presently unclear if the withdrawn cash must solely go towards medical expenses or if it may also be spent on clothing, furniture, and other items.
While it's difficult to predict if RESA will ultimately become law, it has nevertheless received tremendous bipartisan, bicameral support. The legislation has likewise been championed by outside groups, including financial-services firms, economists, researchers, and the AARP.
While the fate of RESA remails in question, much of its provisions have been echoed in the recently passed legislation known as the Every Community Up for Retirement Enhancement (SECURE) Act, which likewise aims to stimulate retirement savings.