April 5, 2019
The SECURE Act and the Retirement Enhancement and
Savings Act Tax Proposals (H.R. 1994 and S. 972)
Both the House and the Senate are considering legislation
Several changes are made to individual retirement accounts,
that addresses issues associated with tax-favored retirement
including allowing non-tuition fellowships and stipends to
plans. The Ways and Means Committee has order reported
be counted as compensation (IRA contributions cannot
the Setting Every Community Up for Retirement
exceed compensation) and repealing the prohibition on
Enhancement (SECURE) Act of 2019, H.R. 1994.
contributions to traditional IRAs by those aged 70½ and
Chairman Grassley and Ranking Member Wyden of the
older.
Senate Finance Committee have introduced the Retirement
Enhancement and Savings Act of 2019, S. 972. The two
Other provisions impacting retirement plans include
bills have a number of similar provisions. Many of the
prohibiting plans from making loans through credit cards
provisions were also included in legislation passed by the
and similar arrangements; allowing the transfer of lifetime
House at the end of the 115th Congress (H.R. 88). The
income investments (annuities) between plans or as a
Grassley-Wyden bill has also been introduced in past
distribution if no longer allowed as an investment option in
Congresses.
a plan; allowing custodial accounts on termination of
certain plans (Section 403(b) plans) to be converted into
H.R. 1994
IRAs; clarifying which individuals can be covered by
The SECURE Act has four parts: provisions that expand
church-controlled organization plans; requiring plans to
benefits for retirement savings, administrative
allow participation by long-term employees working more
improvements, certain other benefits, and revenue
than 500 but less than 1,000 hours per year; allowing
provisions. Provisions apply both to employer plans (in
penalty-free withdrawals from retirement plans for birth of
which employers set up either defined benefit or defined
a child or adoption; increasing the age for taking required
contribution plans for their employees) and individual
distributions from retirement plans from 70½ to 72;
retirement accounts (IRAs). IRAs include traditional
allowing an alternative minimum funding rule for
accounts in which contributions are deducted and
community newspaper plans; and treating “difficulty of
withdrawals taxed and Roth IRAs that simply exclude
care” foster care payments as compensation for the purpose
earnings from taxation.
of contribution limits to retirement plans.
Expanded Benefits for Retirement
According to the Joint Committee on Taxation, these
The proposal liberalizes the treatment of multiemployer
provisions cost $14.6 billion over FY2019-FY2029, with
retirement plans (generally plans provided by more than
the largest cost ($8.9 billion) due to increasing the age for
one employer in the same industry) by providing that
required minimum distributions to 72. The multi-employer
failure of one employer to satisfy plan requirements will not
plan proposals cost $3.4 billion and the withdrawals for
cause all plans to fail. The proposal also provides for the
birth and adoption cost $1.2 billion.
transfer of assets for that employer to another plan. It also
establishes pooled employer plans that do not require a
Administrative Changes
common characteristic and can be administered by a single
The proposal also has some administrative changes. It
entity, simplifying administrative costs.
would allow due dates for establishment of employer plans
on the tax filing day rather than year-end; provide for
The proposal includes some provisions to further encourage
combined annual reporting for all plans in a group; require
automatic enrollment in employer plans, including raising
defined contribution plans to provide a lifetime income
the cap on automatic contributions from 10% to 15% of
discloser; provide a safe harbor to satisfy prudence
employee compensation. It also increases flexibility in
requirements for fiduciaries who are trustees of plans;
adopting certain safe harbor rules from antidiscrimination
modify the nondiscrimination rules so they are not triggered
issues via employer contributions.
by participation in the plan of older, longer-service
employees; and reduce the premiums of the Pension Benefit
The proposal also provides for small employer pension
Guaranty Corporation (PBGC) for cooperative and small
startup costs. The credit is currently the lesser of $500 or
employer charity plans that are a subset of multiemployer
50% of startup costs. The proposal changes the flat dollar
plans. The proposal would also require plans to use the
amount to be the greater of (1) $500 or (2) $250 times the
same discount rate used for benefits to measure unfunded
number of non-highly compensated employees, capped at
liabilities.
$5,000. It also increases the credit by $500 for small
employers that establish automatic enrollment plans. Small
According to the Joint Committee on Taxation, these
employers have no more than 100 employees and the credit
provisions cost $1.4 billion for FY2019-FY2029, with $1.3
applies for up to three years.
billion due to the PBGC revisions.
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The SECURE Act and the Retirement Enhancement and Savings Act Tax Proposals (H.R. 1994 and S. 972)
Other Benefits
S. 972
There are also two provisions unrelated to retirement. One
S. 972 contains many of the same or similar provisions as
provision would reinstate for a year a provision that allows
H.R. 1994, but excludes some, adds additional ones, and
an exclusion from gross income of a reduction in property
has modifications of the major revenue raising proposal.
taxes by volunteer firefighters and emergency medical
responders. The provision also increases the amount that
Expanded Benefits for Retirement
could be excluded from income taxes from $30 per month
S. 972 includes provisions providing additional benefits for
to $50 per month. The second provision would modify
retirement including multiemployer plans, removing the
qualified tuition programs (529 plans) that involves
10% cap on automatic contributions (H.R. 1994 would
prepayment costs for a designated beneficiary. Distributions
increase this cap), increasing the credit for small employer
from the plan used for tuition, fees, books, and supplies, as
pension startup costs, changing IRAs (fellowships as
well as room and board, are exempt from tax. The proposal
compensation and repeal of maximum age for
would extend tax free treatment to apprenticeship programs,
contributions), disallowing loans through credit cards and
expenses of a home-schooling program, distribution (up to
similar arrangements, allowing the transfer of lifetime
$10,000) for payment of student loans (and can also extend
income investments (annuities) between plans or as a
to a sibling of the beneficiary), and certain costs associated
distribution if no longer allowed as an investment option in
with elementary and secondary education. The cost of both
a plan, allowing custodial accounts on termination of
provisions is $0.3 billion from FY2019 to 2029, primarily
certain plans (Section 403(b) plans) to be converted into
due to 529 plan modifications.
IRAs, and clarifying which individuals will be covered by
church-controlled plans. The proposal also includes a
Revenue Provisions
provision not in H.R. 1994 to allow expanded IRA
The bill contains four revenue raising proposals that
ownership of S corporation bank stock.
increase revenues by $16.3 billion for FY2019-FY2029. Of
that revenue, almost all ($15.7 billion) would arise from
Administrative Improvements
changes in the treatment of plans referred to as “stretch
S. 972 also includes the administrative improvements
IRAs” in which assets are left to beneficiaries such as
offered in H.R. 1994. It includes the benefits for volunteer
children and grandchildren who can include the income
firefighters and emergency responders but not the changes
over their lifetime. The proposal would shorten the
in 529 tuition plans.
distribution period for a defined contribution plan for most
beneficiaries from the lifetime of the beneficiary to 10 years
Treatment of U.S. Tax Court Judges
(with certain beneficiaries excepted, including spouses,
S. 972 includes additional provisions that modify retirement
those disabled or chronically ill, minor children while still
and other benefits provided to U.S. Tax Court judges.
minors, and those no more than 10 years younger than the
owner). Other provisions include increases in penalties for
Revenue Provisions
failure to file income tax returns and failure to file
S. 972 also contains the revenue provisions in H.R. 1994,
retirement plan returns, and increased information sharing
but in the case of the major revenue raising proposal, it has
for the purpose of administering and collecting excise taxes
two important differences. It requires inclusion of amounts
on heavy vehicles.
for other than qualified beneficiaries over five years rather
than 10 years. This five-year requirement, however, applies
According to the Joint Committee on Taxation, the gain
only to amounts in excess of the first $400,000.
from the revenue provisions would offset the losses over
the FY2019-FY2029 period, although the proposal loses
Jane G. Gravelle, Senior Specialist in Economic Policy
revenue during the FY2019-FY2024 period and gains in the
latter part of the period.
IF11174

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The SECURE Act and the Retirement Enhancement and Savings Act Tax Proposals (H.R. 1994 and S. 972)



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