Last Minute Funding Action by Congress Sets the Stage for Major Savings and Health Changes

In these final days of the 2019 congressional session, as lawmakers negotiated to avert a shutdown of federal government functions and to authorize spending for the coming fiscal year, a number of tax-advantaged savings and health care-related changes found their way into the legislative mix. The majority are provisions found in legislation passed earlier in 2019 by the House of Representatives, in the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which is legislation that was not taken up by the Senate.

The process is still unfinished. The House of Representatives and Senate must approve the appropriations package, and President Trump must sign it into law.  But indications are that leaders of both parties in both houses of Congress, as well as the Trump administration, are in support of the proposals. Following are key elements of the legislation. 

Retirement Plans and Individual Savings

• Enhances options for multiple employer plans (MEPs), including unrelated employers participating in pooled employer plans (PEPs)
• Expands provisions for automatic enrollment and automatic contribution increases in 401(k)-type plans
• Increases the retirement plan start-up tax credit to a maximum of $5,000 per year
• Provides a new automatic enrollment tax credit
• Delays required minimum distributions (RMDs) from IRAs and retirement plans to age 72
• Requires most nonspouse IRA and retirement plan beneficiaries to deplete inherited accounts—and be taxed—within 10 years
• Permits Traditional IRA contributions at any age
• Treats certain graduate student taxable stipend and fellowship payments—and certain difficulty-of-care payments, as eligible compensation for IRA contribution purposes
• Allows earlier entry into employer-sponsored retirement plans by some long-term, less-than-fulltime employees
• Requires certain retirement plans to provide annual lifetime income estimates
• Provides a new exemption from the IRA and retirement plan early distribution 10% percent excise tax for births and adoptions
• Allows lifetime income investments to be rolled over to an IRA or another retirement plan if a current plan option is eliminated
• Provides a longer period in which an employer may elect to establish a tax-qualified retirement plan
• Enhances the ability of an employer to adopt a safe harbor plan design for its 401(k) plan
• Provides an annuity selection safe harbor for those employer retirement plans that offer this investment option
• Provides nondiscrimination relief for certain defined benefit pension plans closed to new participants
• Permits in-service distributions at age 59½ to participants in governmental 457(b) plans and certain pension plans
• Extends to those affected by a qualifying federally-declared disaster the special disaster-related rules for access to and use of retirement funds
• Broadens the definition of eligible expenses in 529 plans
• Several other miscellaneous provisions

Health and Welfare
Several tax provisions intended to help fund elements of the Affordable Care Act (ACA)—often referred to as Obamacare—would be repealed. They include the following.

• Repeals the 40% excise tax (“Cadillac tax”) on certain high-cost employer-provided health insurance plans
• Repeals the 2.3% excise tax on certain medical devices, which applied to manufacturers, producers, and importers (but not individuals)
• Repeals an annual fee assessed to health insurance providers based on their market share (suspended for 2019), a fee typically passed on to consumers in the form of higher health insurance premiums

Effective Dates and Required Amending
Complicating the picture is the fact that the effective dates of some changes are mere days away—January 1, 2020—these dates having been retained from the legislation as passed by the House of Representatives in May, 2019. However, wisely included in the legislation is a delayed amendment deadline for employer-sponsored retirement plans. This will allow implementation of changes immediately, with amending for the changes generally by the end of the 2022 plan year (2024 for governmental and collectively-bargained plans).

Monitoring and More Analysis to Come
Watch this Ascensus.com News for updates and further analysis as it becomes available.