House committee passes bill to upgrade 401(k) plans amid retirement income crisis
The most comprehensive changes to private retirement plans in more than a decade are gaining momentum in Congress.
A key House committee on Tuesday unanimously passed a bill intended to increase the flexibility of 401(k) plans and improve access to the accounts, particularly for small businesses and their employees.
The proposal, known as the Secure Act, was backed by the top Democrat and Republican on the tax-writing Ways and Means committee.
The bill includes:
- A host of provisions aimed at encouraging small businesses to provide private retirement benefits to their workers.
- It allows them to band together to offer 401(k)s and creates a new tax credit of up to $500 for companies that set up plans with automatic enrollment.
- Businesses with long-term, part-time workers must also allow them to become eligible for retirement benefits.
Several measures that would affect other types of savings are included in the bill.
- It repeals the maximum age for IRA contributions and raises the age for required mandatory distributions from 70½ to 72.
- It also expands the use of 529 plans, from only college-related expenses to include private schools, home schools and student loans.
“Americans currently face a retirement income crisis, with too many people in danger of not having enough in retirement to maintain their standard of living and avoid sliding into poverty,” committee Chairman Richard Neal, D-Mass., said Tuesday.
The bill is one of the few proposals with a significant chance of becoming law amid a bitterly divided Congress. Elements of the bill have been debated among members for years and enjoy wide support among both industry groups and advocacy organizations. On Tuesday, Neal called the legislation “a major bipartisan accomplishment.”
“The Ways and Means committee is where we find solutions and get things done for the American people,” he said.
The last time Congress passed major retirement legislation was in 2006. The Pension Protection Act focused on underfunded accounts and reforms to that system. Since then, lawmakers have debated proposals to address the popularity of 401(k)s and individual savings accounts.
But those efforts have stalled on their own, said Paul Richman, chief government officer at the Insured Retirement Institute, a trade group. He said the Secure Act aims to “modernize” the system.
“It’s packaging them all into a comprehensive piece of legislation that would address many of these little issues that have cropped up over the years,” he said. “We think that it’s a good chance for Congress to take some positive, bipartisan action and advance this bill.”
The Senate Finance committee introduced a companion bill late Monday. It is expected to pass with backing from both sides of the aisle.
“There’s a lot of pent-up momentum for this, and that’s why it’s so bipartisan in nature,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, a think tank. “They’re now getting to the point where there’s momentum to get it across the finish line in both the House and the Senate.”
In the House, Neal said he is also working on a second retirement bill with ranking Republican Rep. Kevin Brady of Texas. He said he hopes the committee will consider that legislation before Congress goes on recess in August.