While significant retirement plan developments are expected later this year in the form of SECURE Act guidance and final Department of Labor electronic delivery regulations, Congress continues to work on student loan issues and “Retirement 2.0” legislation.
Student loan payment issues
Studies show that student loan debt negatively affects retirement savings. In the Fall 2019 issue of Plan Consultant, Brian Graff cites an Employee Benefit Research Institute study finding that families with a college graduate head of household younger than 35 have a median defined contribution plan balance of $20,000 and an average balance of $53,638 for families without student loans. This compares to $13,000 and $32,987, respectively, for families with student loans.
Several proposed legislative bills would address this issue. The American Society of Pension Professionals & Actuaries (ASPPA), a retirement plan industry trade group, is actively involved in the Retirement Parity for Student Loans Act. The act would allow, but not require, employers to make a matching contribution based on a worker’s student loan payments as if the worker made an elective deferral to the plan. For example, if the employer made a 100% matching contribution on the first 5% of a worker’s elective deferrals, then a 100% matching contribution would be made for student loan payments equal to 5% of the worker’s pay.
On the heels of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, Congress is working on what has been called “Retirement 2.0.” Sens. Rob Portman (R-OH) and Ben Cardin (D-MD) introduced the Retirement Security Savings Act last year and want to move the legislation forward. The legislation would address four broad areas:
- Allow workers who have saved too little to increase retirement savings. Among the provisions that would help workers save more for retirement, the bill would (a) establish employer incentives for adopting automatic enrollment plans; (b) increase catch-up limits for workers over age 60; and (c) allow matching contributions to be based on a worker’s student loan payments.
- Help small businesses offer retirement plans. The bill would encourage small businesses to offer a retirement plan by (a) providing a tax credit for adopting a safe harbor plan and (b) simplifying rules to self-correct certain plan errors, and simplifying the “top-heavy” rules.
- Expand low-income worker access to retirement plans. Among the provisions designed to expand low-income worker access to retirement plans, the bill would (a) enhance the existing Saver’s Credit and (b) create a new “government match” by making the Saver’s Credit directly refundable into a retirement account.
- Provide more certainty and flexibility during retirement. Finally, the bill is intended to provide more certainty and flexibility during a worker’s retirement, through (a) increasing the required minimum distribution (“RMD”) age to 75; (b) exempting RMDs for workers with $100,000 or less in retirement savings; and (c) reducing the penalty for failing to take RMDs.
Union Bank will continue to keep you informed of current retirement plan developments. If you have any questions about the above-described proposed legislation, please contact your UBT Relationship Manager.
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