Lawmakers are searching for bipartisan consensus on proposals that could amount to the biggest legislative changes to U.S. retirement savings in more than a decade, including modifications to 401(k)-style plans and enhancing tax incentives for companies to offer them.
Lawmakers are starting with a bipartisan bill that would encourage more small employers to offer retirement savings plans and make it easier for companies to offer annuities that turn workers’ savings into a guaranteed annual income. If passed, the measures would comprise the most significant alterations to 401(k) plans since 2006, when Congress made it easier for employers to enroll workers automatically and invest money in funds that shift focus from stocks to bonds as people age.
The bill, known as the Retirement Enhancement and Savings Act, or RESA, faces a slim congressional election-year calendar and partisan tensions over tax policy. However, the bill has garnered support from financial services companies and AARP, the advocacy group for older Americans, which says “RESA is an important step to improving retirement policy.”
“It is something that could actually move the needle on retirement security,” said Michael Kreps, a principal at Groom Law Group, who represents financial services companies and 401(k) plan sponsors.
In the Senate, RESA is sponsored by the Finance Committee’s chairman, Orrin Hatch (R., Utah), and its top Democrat, Ron Wyden of Oregon. The Finance Committee unanimously approved a version of RESA in 2016, though it hasn’t advanced beyond that stage.
House Republicans plan to make retirement and savings a crucial part of their push for tax legislation this summer and fall. They may pick up some parts of RESA and add their own ideas. That broad interest in encouraging savings gives lawmakers a chance at passing something this year.
Retirement and savings incentives will make up one of three bills in the “Tax Reform 2.0” package House Republicans are assembling, said Rep. Kevin Brady (R., Texas), chairman of the Ways and Means Committee.
The centerpiece of the House GOP tax package is an extension of last year’s tax cuts beyond their 2025 expiration date; that is unlikely to draw enough Democratic votes to become law. But Mr. Brady said he hoped the new retirement bill will attract bipartisan support.
Mr. Brady said he plans to start meeting with House Republicans this week and that he’s consulting with the Trump administration.
Emergency savings are a big focus of this year’s House Republican effort.
Rep. Kenny Marchant (R., Texas), said the bill could include a universal savings account, funded with posttax dollars but with tax-free earnings and more flexible withdrawal rules than existing retirement accounts.
“We’re just trying to find some ways to stimulate people to save more,” Mr. Marchant said.
Among the provisions in RESA is one that would allow small employers to band together to offer 401(k)-type plans. By joining a so-called multiple-employer plan, or MEP, small companies can spread plan administrative costs over more participants, lowering fees. The arrangement is currently available, but only to employers with an affiliation or connection, such as members of the same industry trade association. RESA would eliminate that restriction.
The bill would also encourage 401(k)-style plans to offer annuities, which help participants transform their balances into a lifetime income stream. Though commonly offered by traditional pension plans, annuities aren’t often used in 401(k) plans, in part because employers worry about liability if they choose an insurance company that later fails to pay claims.
To encourage more plan sponsors to take the plunge, the bill gives those that follow certain procedures some protection from future lawsuits when selecting an annuity provider. It also expands a tax credit available to small companies to offset the costs of starting a new retirement plan. The annual credit amount would increase from $500 to as much as $5,000 for three years.
A bipartisan group of senators on Tuesday is slated to introduce separate legislation that would shift some of the fiduciary responsibility from small employers that band together in a multiple-employer plan to the financial services firm that administers the MEP. The legislation would remove disincentives to small businesses to offer 401(k) plans that automatically enroll workers and allow employers to automatically enroll workers into emergency savings accounts. (Employees would be free to opt out.) It would also give workers the option to choose to save a portion of their tax refund before it is issued.
Rep. Richard Neal (D., Mass.), the top Democrat on Ways and Means, said he backs tax provisions that would make it easier for people to set money aside—though he emphasizes that Republicans should have prioritized that over tax rate cuts last year.
“We should be putting this retirement issue front and center for the American people,” said Mr. Neal, an advocate of auto-enrollment in individual retirement accounts.
Mr. Brady isn’t reviving a controversial 2017 idea to lower the cap on pretax retirement-account contributions to as little as $2,400 a year, down from $18,500 now. That would have pushed people into so-called Roth-style accounts, where people pay taxes before making contributions and make tax-free withdrawals in retirement.
Rep. Mike Bishop (R., Mich.), a Ways and Means member, said lawmakers also want to make Health Savings Accounts easier to use. Currently, those with HSAs can deposit money tax-free and make tax-free withdrawals for medical expenses. When HSAs are used for nonmedical expenses, the account owner owes income tax on distributions—and a 20% penalty if younger than 65. Ways and Means last week approved a series of bills to loosen HSA restrictions.
Mr. Brady said any new ability for people to tap into tax-preferred savings would be “very limited.”
“You want that money to stay in there and grow,” he said. ”But we also know that one of the hesitations is that they worry that they put it in and it is locked away, whether they need braces or there’s an emergency.”
Mr. Bishop said he was doubtful Congress could find a bipartisan path.
“I don’t know that anything right now is going to escape this hyperbolic environment,” he said.
House Republicans, as they did on the larger tax law last year, haven’t included Democrats in their talks, said Rep. Suzan DelBene (D., Wash.)
“While I would like to see Democrats and Republicans work together to address struggling pension programs and ensure seniors can live in dignity, House Republicans again show no interest in bipartisan collaboration,” she said in a statement.
By Richard Rubin and
Anne Tergesen-Wall Street Journal