The Retirement Enhancement and Savings Act (RESA) is a planned legislation sponsored by Orrin Hatch (R-Utah) and Ron Wyden (D-Oregon). The RESA act shares similarities to a proposal that was approved by the Finance Committee in 2016 but died before Congress took any action.
The Senate bill is almost identical to a House bill introduced earlier this year, which was amended Friday with additional provisions. The House bill was renamed the SECURE Act, a new bipartisan legislation, according to the Insured Retirement Institute. RESA aims to increase voluntary retirement savings. On its own, it is not significant enough to propel legislation, but together they merit a bill.
The SECURE Act is scheduled for a vote by the House Ways & Means Committee on Tuesday, April 2, 2019.
RESA Act of 2019 was introduced by Chairman Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.) of the Senate Finance Committee on Monday.
The SECURE Act, which was introduced Friday, simplifies how annuities will be offered in 401(k) and 403(b) plans. It raises the age for taking an RMD (required minimum distribution) from 70 1/2 to 72. Grassley and Wyden said their bill is the result of “the best ideas” from retirement discussions held by lawmakers since 2006.
What is RESA?
Multi-Employer Pension Plans (MEPs)
RESA intends to improve MEPs by allowing small companies to share (and thereby reduce) administrative costs. This will result in lower costs and higher investment returns for employees. The current law requires that employers who band together to offer their employees 401(k)-type retirement plans have a connection, like being a part of the same industry. RESA plans to eliminate this requirement, and a provision that will jeopardize the plan in the result that one member-employee violate the law.
Say Hello to Annuities
More often than not, traditional pension plans offer an annuity option that creates a lifetime stream of income for employees. However, this is not the case for most 401(k) plans. RESA intends to protect companies from lawsuits in the event that an annuity provider goes out of business or fails to live up to its arrangement. RESA will also require benefit statements to include lifetime income estimates at lest once a year. Additionally, it will improve the portability of these annuities for employees who change jobs.
Tax Credit Incentive
Currently, if a company starts a new retirement plan for its employees, the company receives a $500 tax credit. Under RESA, that will increase to as much as $5,000 for three years. The credit will apply to new 401(k) plans and SIMPLE IRAs. Plans that add automatic enrollment will receive an additional $500 credit for up to three years.
Graduate Students Saving for Retirement
One section of the bill will enable graduate and postdoctoral level students to treat certain taxable non-tuition fellowship or stipend payments as compensation for IRA purposes. As a result, this will increase the amount that students can contribute to their own retirement account. Currently, taxable non-tuition payments are not considered income.
Extending IRA Contribution Deadline
RESA plans to remove barriers for individuals who are over the age of 70 1/2 and currently cannot contribute to traditional IRAs even if they are working. The legislation will allow anyone who has earned income to contribute to a traditional IRA, no matter what their age. This will not affect contributions to a Roth IRA, as it’s already permitted for individuals over 70 1/2.
The reemergence of RESA is a step in the right direction. First, it will make it easier for American small businesses to offer retirement benefits to their employees. Additionally, the act can make it easier for individuals to save for retirement because of the annuity inclusion and by extending the annual IRA contribution age limit.
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