Updated May 24, 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. On May 23, the House passed the Setting Every
be counted as compensation (IRA contributions cannot
Community Up for Retirement Enhancement (SECURE)
exceed compensation) and repealing the prohibition on
Act of 2019, H.R. 1994. Chairman Grassley and Ranking
contributions to traditional IRAs by those aged 70½ and
Member Wyden of the Senate Finance Committee have
older.
introduced the Retirement Enhancement and Savings Act of
2019, S. 972. The two bills have a number of similar
Other provisions impacting retirement plans include
provisions. Many of the provisions were also included in
prohibiting plans from making loans through credit cards
legislation passed by the House at the end of the 115th
and similar arrangements; allowing the transfer of lifetime
Congress (H.R. 88). The Grassley-Wyden bill has also been
income investments (annuities) between plans or as a
introduced in past Congresses.
distribution if no longer allowed as an investment option in
a plan; allowing custodial accounts on termination of
H.R. 1994
certain plans (Section 403(b) plans) to be converted into
The SECURE Act has four parts: provisions that expand
IRAs; clarifying which individuals can be covered by
benefits for retirement savings, administrative
church-controlled organization plans; requiring plans to
improvements, certain other benefits, and revenue
allow participation by long-term employees working more
provisions. Provisions apply both to employer plans (in
than 500 but less than 1,000 hours per year; allowing
which employers set up either defined benefit or defined
penalty-free withdrawals from retirement plans for birth of
contribution plans for their employees) and individual
a child or adoption; increasing the age for taking required
retirement accounts (IRAs). IRAs include traditional
distributions from retirement plans from 70½ to 72;
accounts in which contributions are deducted and
allowing an alternative minimum funding rule for
withdrawals taxed and Roth IRAs that simply exclude
community newspaper plans; and treating “difficulty of
earnings from taxation.
care” foster care payments as compensation for the purpose
of contribution limits to retirement plans.
Expanded Benefits for Retirement
The proposal liberalizes the treatment of multiple employer
According to the Joint Committee on Taxation, these
retirement plans (generally plans provided by more than
provisions cost $14.6 billion over FY2019-FY2029, with
one employer in the same industry) by providing that
the largest cost ($8.9 billion) due to increasing the age for
failure of one employer to satisfy plan requirements will not
required minimum distributions to 72. The multi-employer
cause all plans to fail. The proposal also provides for the
plan proposals cost $3.4 billion and the withdrawals for
transfer of assets for that employer to another plan. It also
birth and adoption cost $1.2 billion.
establishes pooled employer plans that do not require a
common characteristic and can be administered by a single
Administrative Changes
entity, simplifying administrative costs.
The proposal also has some administrative changes. It
would allow due dates for establishment of employer plans
The proposal includes some provisions to further encourage
on the tax filing day rather than year-end; provide for
automatic enrollment in employer plans, including raising
combined annual reporting for all plans in a group; require
the cap on automatic contributions from 10% to 15% of
defined contribution plans to provide a lifetime income
employee compensation. It also increases flexibility in
discloser; provide a safe harbor to satisfy prudence
adopting certain safe harbor rules from antidiscrimination
requirements for fiduciaries who are trustees of plans;
issues via employer contributions.
modify the nondiscrimination rules so they are not triggered
by participation in the plan of older, longer-service
The proposal also provides for small employer pension
employees; and reduce the premiums of the Pension Benefit
startup costs. The credit is currently the lesser of $500 or
Guaranty Corporation (PBGC) for cooperative and small
50% of startup costs. The proposal changes the flat dollar
employer charity plans that are a subset of multiple
amount to be the greater of (1) $500 or (2) $250 times the
employer plans. The proposal would also require plans to
number of non-highly compensated employees, capped at
use the same discount rate used for benefits to measure
$5,000. It also increases the credit by $500 for small
unfunded liabilities.
employers that establish automatic enrollment plans. Small
employers have no more than 100 employees and the credit
According to the Joint Committee on Taxation, these
applies for up to three years.
provisions cost $1.4 billion for FY2019-FY2029, with $1.3
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
FY2019-FY2024 period and gains in the latter part of the
There are also two provisions unrelated to retirement. One
period.
provision would reinstate for a year a provision that allows
an exclusion from gross income of a reduction in property
S. 972
taxes by volunteer firefighters and emergency medical
S. 972 contains many of the same or similar provisions as
responders. The provision also increases the amount that
H.R. 1994, but excludes some, adds additional ones, and
could be excluded from income taxes from $30 per month
has modifications of the major revenue raising proposal.
to $50 per month. The second provision would modify
qualified tuition programs (529 plans) that involves
Expanded Benefits for Retirement
prepayment costs for a designated beneficiary. Distributions
S. 972 includes provisions providing additional benefits for
from the plan used for tuition, fees, books, and supplies, as
retirement including multiple employer plans, removing the
well as room and board, are exempt from tax. The proposal
10% cap on automatic contributions (H.R. 1994 would
would extend tax free treatment to apprenticeship programs,
increase this cap), increasing the credit for small employer
distribution (up to $10,000) for payment of student loans
pension startup costs, changing IRAs (fellowships as
(and can also extend to a sibling of the beneficiary), and
compensation and repeal of maximum age for
certain costs associated with elementary and secondary
contributions), disallowing loans through credit cards and
education. The cost of both provisions is $0.2 billion from
similar arrangements, allowing the transfer of lifetime
FY2019 to 2029, primarily due to 529 plan modifications.
income investments (annuities) between plans or as a
distribution if no longer allowed as an investment option in
Revenue Provisions
a plan, allowing custodial accounts on termination of
The bill contains four revenue raising proposals that
certain plans (Section 403(b) plans) to be converted into
increase revenues by $16.4 billion for FY2019-FY2029. Of
IRAs, and clarifying which individuals will be covered by
that revenue, almost all ($15.7 billion) would arise from
church-controlled plans. The proposal also includes a
changes in the treatment of plans referred to as “stretch
provision not in H.R. 1994 to allow expanded IRA
IRAs” in which assets are left to beneficiaries such as
ownership of S corporation bank stock.
children and grandchildren who can include the income
over their lifetime. The proposal would shorten the
Administrative Improvements
distribution period for a defined contribution plan for most
S. 972 also includes the administrative improvements
beneficiaries from the lifetime of the beneficiary to 10 years
offered in H.R. 1994. It includes the benefits for volunteer
(with certain beneficiaries excepted, including spouses,
firefighters and emergency responders but not the changes
those disabled or chronically ill, minor children while still
in 529 tuition plans.
minors, and those no more than 10 years younger than the
owner). Other provisions include increases in penalties for
Treatment of U.S. Tax Court Judges
failure to file income tax returns and failure to file
S. 972 includes additional provisions that modify retirement
retirement plan returns, and increased information sharing
and other benefits provided to U.S. Tax Court judges.
for the purpose of administering and collecting excise taxes
on heavy vehicles.
Revenue Provisions
S. 972 also contains the revenue provisions in H.R. 1994,
Treatment of Military Survivor Benefits
but in the case of the major revenue raising proposal, it has
The bill would treat military survivor benefits as earned
two important differences. It requires inclusion of amounts
income for purposes of the “kiddie” tax, which taxes
for other than qualified beneficiaries over five years rather
unearned income of children under 19 and college students
than 10 years. This five-year requirement, however, applies
under 24 at the higher rates applicable to trusts and estates.
only to amounts in excess of the first $400,000.
According to the Joint Committee on Taxation, the gain
Jane G. Gravelle, Senior Specialist in Economic Policy
from the revenue provisions would largely offset the losses
over the FY2019-FY2029 period (with an overall loss of
IF11174
0.3 billion), although the proposal loses revenue during the

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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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