A bipartisan legislative proposal to spur greater sponsorship of retirement plans by smaller employers and higher deferral levels by plan participants has been proposed once again in Washington.
The Retirement Security Act of 2015, introduced jointly as S 266 in the Senate and HR 557 in House of Representatives, is being praised by employer groups including the U.S. Chamber of Commerce and the American Benefits Council.
The bill has three principal components. One would create a new safe harbor employer matching contribution limit. Current safe harbors effectively cap at 6% the amount of pay eligible for an employer match.
The proposal would create an additional, optional safe harbor that would allow employees to receive an employer match on contributions up to 10%, as well as allow employers to default participants into a ten percent contribution rate, according to summary of the measure issued by the office of Rep. Vern Buchanan (R-Fla.), a cosponsor of the measure.
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Democratic Congressman Ron Kind of Wisconsin also co-sponsored the House bill.
The same bill was introduced in the Senate a year ago by Senators Susan Collins (R-Me.) and Bill Nelson (D-Fla.)
The smallest employers would be eligible for a tax credit that would offset the cost of that incrementally higher (4%) higher match.
Another provision of the bill would enable low- and middle income taxpayers eligible for a $1,000 tax credit ($2,000 for couples) under the existing savers tax credit program to apply for that credit on the 1040EZ tax return form.
'Bad apple rule'
Finally, a third major piece of the legislation would remove a disincentive for employers to sponsor retirement plans economically through multiple employer plans. Not to be confused with labor union jointly trusteed multi-employer plans, MEPs are adopted by two or more employers in order to gain economies of scale and negotiate more competitively priced administrative services.
That disincentive is known as the one bad apple rule.
The failure of one participating employers or the failure of the plan itself to satisfy a qualification requirement will result in the disqualification of the plan for all participating employers, according to IRS regulations.
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For example, if one employer participating in a MEP failed to satisfy the top-heavy rules, then the multiple employer plan is disqualified for all of the employers in the plan, according to the IRS.
The Retirement Security Act would eliminate that rule.
We believe the bills reforms of the multiple employer plan rules will expand opportunities for small businesses to band together to maintain plans at a lower cost, according to Lynn Dudley, ABCs chief of retirement and compensation policy.
MEPs are sponsored by professional employer organizations (employee leasing companies fall under this heading), trade associations and open MEPs entities established exclusively to enable all kinds of employers to take advantage of the MEP legal mechanism.
A 2012 report by the Government Accountability Office estimated that about six percent of defined contribution plan assets are within MEPs.
