Updated December 20, 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
employers that establish automatic enrollment plans. Small
that addresses issues associated with tax-favored retirement
employers have no more than 100 employees and the credit
plans. On May 23, the House passed the Setting Every
applies for up to three years.
Community Up for Retirement Enhancement (SECURE)
Act of 2019, H.R. 1994. Chairman Grassley and Ranking
Several changes are made to individual retirement accounts,
Member Wyden of the Senate Finance Committee have
including allowing nontuition fellowships and stipends to
introduced the Retirement Enhancement and Savings Act of
be counted as compensation (IRA contributions cannot
2019, S. 972. The two bills have a number of similar
exceed compensation) and repealing the prohibition on
provisions. Many of the provisions were also included in
contributions to traditional IRAs by those aged 70½ and
legislation passed by the House at the end of the 115th
older.
Congress (H.R. 88). The Grassley-Wyden bill has also been
introduced in past Congresses.
Other provisions impacting retirement plans include
prohibiting plans from making loans through credit cards
The provisions of the SECURE Act are included in the
and similar arrangements; allowing the transfer of lifetime
House amendment to the Senate amendment to H.R. 1865,
income investments (annuities) between plans or as a
the Further Consolidated Appropriations Act, 2020.
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 FY2020-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 multiemployer
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.
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The SECURE Act and the Retirement Enhancement and Savings Act Tax Proposals (H.R. 1994 and S. 972)
According to the Joint Committee on Taxation, these
over the FY2020-FY2029 period (with an overall loss of
provisions cost $1.4 billion for FY2020-FY2029, with $1.3
0.3 billion), although the proposal loses revenue during the
billion due to the PBGC revisions.
FY2020-FY2024 period and gains it in the latter part of the
period.
Other Benefits
There are also two provisions unrelated to retirement. One
S. 972
provision would reinstate for a year a provision that allows
S. 972 contains many of the same or similar provisions as
an exclusion from gross income of a reduction in property
H.R. 1994, but excludes some, adds additional ones, and
taxes by volunteer firefighters and emergency medical
has modifications of the major revenue-raising proposal.
responders. The provision also increases the amount that
could be excluded from income taxes from $30 per month
Expanded Benefits for Retirement
to $50 per month. The second provision would modify
S. 972 includes provisions providing additional benefits for
qualified tuition programs (529 plans) that involve
retirement, including liberalizing treatment of multiple-
prepayment costs for a designated beneficiary. Distributions
employer plans, removing the 10% cap on automatic
from these plans used for tuition, fees, books, and supplies,
contributions (H.R. 1994 would increase this cap),
as well as room and board, are exempt from tax. The
increasing the credit for small employer pension startup
proposal would extend tax-free treatment to apprenticeship
costs, changing IRAs (fellowships as compensation and
programs, distribution (up to $10,000) for payment of
repeal of maximum age for contributions), disallowing
student loans (and can also extend to a sibling of the
loans through credit cards and similar arrangements,
beneficiary), and certain costs associated with elementary
allowing the transfer of lifetime income investments
and secondary education. The cost of both provisions is
(annuities) between plans or as a distribution if no longer
$0.2 billion from FY2020 to 2029, primarily due to 529
allowed as an investment option in a plan, allowing
plan modifications.
custodial accounts on termination of certain plans (Section
403(b) plans) to be converted into IRAs, and clarifying
Revenue Provisions
which individuals will be covered by church-controlled
The bill contains four revenue-raising proposals that
plans. The proposal also includes a provision not in H.R.
increase revenues by $16.2 billion for FY2020-FY2029. Of
1994 to allow expanded IRA ownership of S corporation
that revenue, almost all ($15.7 billion) would arise from
bank stock.
changes in the treatment of plans referred to as “stretch
IRAs” in which assets are left to beneficiaries such as
Administrative Improvements
children and grandchildren, who can include the income
S. 972 also includes the administrative improvements
over their lifetime. The proposal would shorten the
offered in H.R. 1994. It includes the benefits for volunteer
distribution period for a defined contribution plan for most
firefighters and emergency responders but not the changes
beneficiaries from the lifetime of the beneficiary to 10 years
in 529 tuition plans.
(with certain beneficiaries excepted, including spouses,
those disabled or chronically ill, minor children while still
Treatment of U.S. Tax Court Judges
minors, and those no more than 10 years younger than the
S. 972 includes additional provisions that modify retirement
owner). Other provisions include increases in penalties for
and other benefits provided to U.S. Tax Court judges.
failure to file income tax returns and failure to file
retirement plan returns, and increased information sharing
Revenue Provisions
for the purpose of administering and collecting excise taxes
S. 972 also contains the revenue provisions in H.R. 1994,
on heavy vehicles.
but in the case of the major revenue-raising proposal, it has
two important differences. It requires inclusion of amounts
Unearned Income of Certain Children
for other than qualified beneficiaries over 5 years rather
The bill would reverse a provision subjecting unearned
than 10 years. This 5-year requirement, however, applies
income of children at the higher rates applicable to trusts
only to amounts in excess of the first $400,000.
and estates and tax it at the parent’s rates, for a cost of $0.5
billion.
Jane G. Gravelle, Senior Specialist in Economic Policy
According to the Joint Committee on Taxation, the gain
IF11174
from the revenue provisions would largely offset the losses


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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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https://crsreports.congress.gov | IF11174 · VERSION 7 · UPDATED

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