Bill Seeks Repeal of Auto Contributions Cap

Representative Richard E. Neal (D-Massachusetts) introduced the Retirement Plan Simplification and Enhancement Act of 2013 (H.R. 2117) to Congress. The bill asks for the Internal Revenue Code (IRC) to be changed in order to repeal the 10% cap on the qualified percentage of an employee’s compensation as “the standard for an employer’s contribution to an automatic cash or deferred contribution arrangement under the alternative method for meeting nondiscrimination requirements.”

The bill would also offer an eligible employer a credit against the income tax of 10% of all contributions under a secure deferral arrangement made during the plan year by or on behalf of employees other than highly compensated employees.

With regard to long term, part-time employees, the bill would revise the period of service requirements for a qualified cash or deferred arrangement to cover those working at least three consecutive 12-month periods, during each of which the employee has at least 500 hours of service.

The bill would also revise the Saver’s Credit for an applicable percentage of up to $2,000 of an individual’s qualified retirement savings contributions for the taxable year. The credit would be doubled if the taxpayer consented that it be paid into a designated retirement account. Contributions would be limited to $500, with annual increases up to $1,500, adjusted for inflation, after 2023.

In addition, the bill asks that the Social Security Act be amended to have the Social Security Administration prepare a financial reference handbook for distribution to an individual applying for the first time for benefits under title II (Old-Age, Survivors and Disability Insurance or OASDI), and a retirement readiness checklist for inclusion in an individual’s annual Social Security account statement.

Another federal agency, the Pension Benefit Guaranty Corporation (PBGC), would also be affected. The language of the bill would require the PBGC to establish a Lost Pension Plan Registry database to record any change in a pension plan's name, any change in the name or address of the plan administrator, the termination of the plan, or the merger or consolidation of the plan with any other plan or its division into two or more plans. It would also require this registry to be published on the PBGC website.

The bill also asked for several changes to be made to regulations dealing with church pension plans. First, it proposes that the Internal Revenue Code be amended to state that an organization otherwise eligible to participate in a church plan shall not be aggregated with another such organization and treated as a single employer with it unless one organization provides directly or indirectly at least 80% of the operating funds for the other one during the recipient's preceding tax year, and there is a degree of common management or supervision between the organizations.

Secondly, the bill would preempt any state law relating to wage, salary, or payroll payment, collection, deduction, garnishment, assignment, or withholding that would directly or indirectly prohibit or restrict the inclusion in any church plan of an automatic contribution arrangement. Thirdly, the bill would exclude from gross income, for income tax purposes, amounts attributable to transfers of and mergers of church plans that are maintained by the same church or convention or association of churches.

And finally, the language of the bill would allow church plans and their supporting organizations to invest plan assets in a group trust (as defined by Internal Revenue Service Revenue Rulings).

The text of the bill can be found here.