More Public Policy Topics
Policy, legislative, and regulatory topics are frequently changing or being introduced. Visit this page often to access the latest information about other topics and how they may impact Plan Sponsors and participants.
Tax reform proposals continue to surface as a way to reduce the deficit and pay for other legislation. Past proposals have included capping retirement contributions across accounts, freezing contribution limits, and lowering contribution limits. It will be important to encourage leadership not to pursue tax reform to the detriment of retirement accounts.
Tax reform proposals to limit contributions or accumulation in retirement plans creates concerns for plan sponsors about managing grandfathered limits (if applicable), while managing revised or aggregated limits. This may result in plan administration being more burdensome and costly to manage. Participants might have fewer options for contributing in a tax-deferred environment with the potential increase in non-elective or matching contributions in Roth accounts.
The House Ways and Means Committee Chairman remains very focused on tax reform and would like to advance changes in 2017, although various other policy issues, the Affordable Care Act being first and foremost, are likely to take precedent in the first half of 2017 at least.
While legislation has yet to be introduced, the GOP released their "blueprint" for tax reform in the next Administration in a document titled "A Better Way" in late June 2016. Positions impacting retirement savings as follows:
The effect of such proposals may reflect an intent to consolidate defined contribution plans including 401(k), 403(b), and 457(b), and possibly SIMPLEs and SEPs. Proposals such as this have been a topic of discussion for many years, and while the intent may be to simplify the number of different types of defined contribution plans, it could result in more complexity and disruption if these plans have to be modified and restructured.
There is extensive evidence that large segments of the working population are uncovered by work based retirement saving plans and are therefore underprepared for retirement. States have growing concerns about the economic impact unsaved and under-saved individuals will have on governmental social safety nets. Over the past several years, both federal and state governments have started to look closely at how they might improve the access for citizens to accumulate retirement savings. The focus of this effort is on citizens working in private enterprise in the state, not on employees of the state who already have access to workplace retirement savings.
To date, over 30 states have proposed state run programs or studies to examine the possibility or need of them. Five states have enacted state run automatic IRA programs with a mandate for small employers who do not otherwise provide access to workplace retirement savings.
In 2015 and 2016, the Department of Labor issued final regulatory guidance to address state run and city/municipality run retirement savings programs. Under the Congressional Review Act, Congress can block implementation of a final rule by passing a disapproval of the regulation with majority votes in both chambers of Congress within a 60 legislative day window. In February, House of Representatives passed two resolutions of disapproval to block both pieces of guidance. The bills would still have to be passed in the Senate. We will continue to monitor further developments
Bank of America Merrill Lynch and its associates does not provide tax, accounting or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties. Please consult your own independent advisor as to any tax, accounting or legal statements made herein.
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