Pending Legislation: Spring 2017

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1 By Jon Vogler Pending Legislation: Spring 2017 Jon Vogler Senior Analyst for Retirement Research A large percentage of the retirement-related bills that have been introduced in this first calendar quarter of the new 115th Congress have to do with Social Security. Examples (listed in the Social Security category below) include proposals to: a. Apply payroll taxes to remuneration (and earnings from self-employment) up to the contribution and benefit base and also to remuneration in excess of $250,000 (see Social Security Expansion Act ), b. Ensure that the Social Security trust funds are not included in the federal budget and to provide that trust fund monies cannot be diverted to create private accounts ( Social Security Protection and Truth in Budgeting Act of 2017 ), c. Repeal the government pension offset and the windfall elimination provision ( Social Security Fairness Act of 2017 ), d. Create a special account to hold the Social Security surplus ( Savings for Seniors Act of 2017 ), e. Provide for an annual cost-of-living increase which is at least 3% ( Guaranteed 3 Percent COLA for Seniors Act of 2017 ), and f. Improve Social Security benefits for widows and widowers in two-income households ( Protecting Our Widows and Widowers in Retirement (POWR) Act ). On the regulatory front, the Department of Labor (DOL), as of this writing, has extended the scheduled April 10 applicability date of its fiduciary (conflict of interest) rule by 60 days, to June 9, after reviewing public comments it solicited on a proposed delay. In a second comment period, which extends to April 17, the DOL is requesting input on the Feb. 3 directive it received from President Trump to publish for notice and comment a [new] proposed rule rescinding or revising the fiduciary rule, if the DOL determines that an updated economic and legal analysis considering three specified criteria in the directive reveals problems in these areas or if the DOL concludes that the rule is inconsistent with the administration s stated priorities. The DOL also raised several related questions for its second comment period. Financial services industry groups, as well as several members of Congress, have expressed concern over the past few years that the rule would have the unintended consequence of hampering American savers ability to access retirement planning help with trusted advisors. From a legislative angle, a proposed bill listed in the Fiduciary rule section of this edition ( Protecting American Families Retirement Advice Act ) would delay implementation of the rule for two years. The following represent bills that are actively being considered by Congress at this time. For more information on these and other bills, go to the Library of Congress website at

2 Budget Pension and Budget Integrity Act of 2017 HR 761 Rep. Renacci, R-OH Fiduciary rule Protecting American Families Retirement Advice Act HR 355 Rep. Wilson, R-SC Form 5500 To avoid duplicative annual reporting under the Internal Revenue Code of 1986 (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA) HR 1688 Rep. Sanchez, D-CA IRAs Legacy IRA Act HR 1337 Rep. Cramer, R-ND The bill would prohibit the use of premiums paid to the Pension Benefit Guaranty Corporation as an offset for other federal spending. This bill would delay for two years the effective date of the DOL rule published on April 8, 2016, relating to the definition of the term fiduciary and the conflict of interest rule with respect to retirement investment advice. This bill would allow employers and sole proprietors participating in similar retirement plans to file a single aggregated Form This bill amends the IRC to expand the tax exclusion for distributions from individual retirement accounts (IRAs) for charitable purposes. The bill limits the exclusion annually to: $100,000 for distributions to charitable organizations and $400,000 for distributions to split-interest entities. Tax-free distributions to a split-interest entity may be made when the account beneficiary attains age 65. (Under current law, the beneficiary must attain the age of 70-1/2 for IRA distributions to a charitable organization.) Introduced 1/31/17 referred to the Rules Committee and the Budget Similar bill (S 270) introduced in Senate on 2/1/17 by Sen. Enzi, R-WY. Introduced 1/6/17 referred to As of this writing, the DOL has just extended the applicability date of the fiduciary (conflict of interest) rule by 60 days to 6/9/17. This bill, which would delay the rule for two years, has not gotten any initial traction, but still looms as a possibility, if a legislative solution to the controversial rule is sought. Introduced 3/22/17 referred to the Education and the Workforce Introduced 3/2/17 referred to

3 Multi-employer plans Pension Accountability Act S 489 Sen. Portman, R-OH Pooled employer plans Retirement Security for American Workers Act HR 854 Rep. Buchanan, R-FL This bill amends ERISA and the IRC to revise rules for voting on the suspension of pension benefits under multi-employer plans in endangered or critical status. The bill changes the voting procedure for suspending plan benefits to provide that a suspension shall go into effect unless a majority of plan participants and beneficiaries who cast a vote (currently, a majority of all plan participants and beneficiaries) reject the suspension. The bill also eliminates the authority of the Department of the Treasury, in the case of systemically important plans, to override a vote of plan participants to reject a suspension. A plan is systemically important if projected financial assistance to the plan will exceed $1 billion if suspensions are not implemented. This bill amends the IRC and ERISA to modify the qualification requirements for certain multiple employer retirement plans. A multiple employer plan that meets certain criteria may not be disqualified or otherwise lose its tax-favored status because one or more participating employers fail to take actions required with respect to the plan. The bill applies to a multiple employer defined contribution plan or a plan that consists of IRAs that either: (1) is sponsored by employers that both have a common interest other than having adopted the plan and control the plan, or (2) have a pooled plan provider. The bill does not apply unless the terms of the plan require a noncompliant employer to, subject to the discretion of the Internal Revenue Service, (1) transfer assets of the plan attributable to the employees of the noncompliant employer to other specified retirement plans, and (2) be liable for plan liabilities attributable to employees of the noncompliant employer. For the purposes of this bill, a defined contribution plan that is established or maintained for the purpose of providing benefits to the employees of two or more employers and that meets certain requirements (a pooled employer plan) is treated for the purposes of ERISA as a single plan that is a multiple employer plan. The bill modifies reporting requirements under ERISA that apply to pooled employer and multiple employer plans. Introduced 3/2/17 referred to the Health, Education, Labor and Pensions Introduced 2/3/17 referred to Pooled employer plans, which are similar to (and would be treated as) multiple employer plans, would allow unrelated employers who meet certain requirements to band together and sponsor a retirement plan, thus avoiding duplicative administrative costs. The concept is gaining popularity and has a good chance of being adopted in one form or another.

4 Public employee pensions Servicemember Retirement Improvement Act S 492 Rep. Cornyn, R-TX State and Local Pensions Accountability and Security Act HR 1124 Rep. Babin, R-TX Law Enforcement Officers Equity Act S 424 Sen. Booker, D-NJ Fair RETIRE Act S 29 Sen. Tester, D-MT Savings accounts American Savings Account Act of 2017 HR 1083 Rep. Huffman, D-CA Helping Families Save for Education Act HR 999 Rep. Walberg, R-MI This bill amends the IRC to allow members of the Ready Reserve of a reserve component of the Armed Forces to make the maximum allowable contribution ($18,000 in 2017) to their Thrift Savings Plans (TSPs) without limiting the amount such members may contribute to a retirement plan based upon other employment. The bill also doubles the maximum allowable contribution amount to the TSPs of federal employees in the Ready Reserve who are not eligible to make contributions to any plan other than the TSP. The bill would prohibit the Secretary of the Treasury and the Board of Governors of the Federal Reserve System from providing bailouts or other financial assistance to a pension plan of a state or political subdivision thereof. The bill would amend title 5, United States Code, to include certain federal positions within the definition of law enforcement officer for retirement purposes. The bill would permit disabled law enforcement officers, customs and border protection officers, firefighters, air traffic controllers, nuclear materials couriers, members of the Capitol Police, members of the Supreme Court Police, employees of the Central Intelligence Agency performing intelligence activities abroad or having specialized security requirements, and diplomatic security special agents of the State Department to receive retirement benefits in the same manner as if they had not been disabled. This bill amends the IRC to establish a new retirement option for all employees and selfemployed individuals to be known as the American Savings Account Fund. This fund operates in a manner similar to the TSP, which is available to federal employees. The bill establishes an American Savings Account Board of Directors to establish policies for fund investment and management. The board shall select or establish a list of investment funds and options similar to those in the TSP, among which participants may choose. The American Savings Account Fund is tax-exempt and contributions to, or distributions from, it are excludible from gross income. The bill would amend the IRC, with respect to Coverdell education savings accounts, to (1) increase the age limit for beneficiaries of such accounts after which contributions may not be made from age 18 to age 22, and (2) increase the maximum contribution limit in any taxable year from $2,000 to $10,000. Introduced 3/2/17 referred to the Finance Introduced 2/16/17 referred to the Financial Services Introduced 2/16/17 referred to the Homeland Security and Governmental Affairs Introduced 1/4/17 referred to the Homeland Security and Governmental Affairs Introduced 2/15/17 referred to Introduced 2/9/17 referred to

5 Savings accounts Disapproving the rule submitted by the DOL relating to savings arrangements established by states for nongovernmental employees. H.J. Res. 66 Rep. Walberg, R-MI This joint resolution nullifies a rule submitted by the DOL s Employee Benefits Security Administration (EBSA) regarding savings arrangements established by states for nongovernmental employees. Introduced 2/7/17 referred to the Education and the Workforce This resolution passed the House on 2/15/17 ( ). Similar resolution (S.J. Res. 32) introduced in Senate by Sen. Hatch, R-UT, on 3/6/17. Disapproving the rule submitted by the DOL relating to savings arrangements established by qualified state political subdivisions for nongovernmental employees. H.J. Res. 67 Rep. Rooney, R-FL This joint resolution nullifies a rule submitted by the DOL s EBSA regarding savings arrangements established by qualified state political subdivisions for non-governmental employees. This resolution, if also passed by the Senate and signed by the President, would rescind the DOL regulations which permit state-run plans for private sector employees who are not covered by an employer-sponsored retirement plan to be exempt from ERISA. Introduced 2/7/17 referred to the Education and the Workforce This resolution passed the House on 2/15/17. Similar resolution (S.J. Res. 33) introduced in Senate by Sen. Hatch, R-UT, on 3/6/17 and passed on 3/30/17 (50 49). This resolution, if signed by the President, would rescind the DOL regulations which permit plans run by qualifying cities or counties for private sector employees who are not covered by an employer-sponsored retirement plan to be exempt from ERISA.

6 Savings accounts Universal Savings Accounts Act HR 937 Rep. Brat, R-VA Small Business Start-up Savings Accounts Act of 2017 HR 929 Rep. Sewell, D-AL This bill amends the IRC to allow for the establishment of Universal Savings Accounts (USAs). These accounts shall be tax-exempt and may be opened by any individual who is at least 18 years of age and a US citizen or legal permanent resident. Contributions to these accounts must be in cash and may not exceed $5,500 (adjusted annually for inflation) in any calendar year. Distributions from a USA are excluded from the gross income of the account holder for income tax purposes. This bill would amend the IRC to provide for taxpreferred Small Business Start-up Savings Accounts to pay for trade or business expenses, including the purchase of equipment or facilities, marketing, training, incorporation and accounting fees. The bill allows annual nondeductible contributions to such accounts of up to $10,000, subject to a $150,000 limit on total contributions to the account and adjustments for inflation after The bill sets forth rules for the tax treatment of contributions to and rollovers or distributions from the accounts, similar to rules governing IRAs. Qualified distributions from the accounts are excluded from gross income. Introduced 2/7/17 referred to The Better Way tax reform blueprint released in 2016 by House Republicans directs the Ways and Means Committee to explore the creation of more general savings vehicles, like USAs. These accounts would be individual accounts outside of the employer-based savings systems in which account holders make after-tax contributions, much like a Roth IRA works today. But unlike Roth accounts, USA account holders could withdraw both contributions and earnings at any time, and for any reason, without tax penalties. It is unclear how these accounts would affect the relevance of IRAs. Introduced 2/7/17 referred to

7 Savings accounts 529 and ABLE Account Improvement Act of 2017 HR 529 Rep. Jenkins, R-KS Social Security Save Social Security Act (SSA) of 2017 HR 1631 Rep. Crist, D-FL Protecting Our Widows and Widowers in Retirement (POWR) Act HR 1583 Rep. Sanchez, D-CA CPI-E Act of 2017 HR 1251 Rep. Garamendi, D-CA Social Security Fairness Act of 2017 HR 1205 Rep. Davis, R-IL This bill amends the IRC to modify the tax treatment of qualified tuition programs (known as 529 plans) and ABLE accounts. [Tax-favored Achieving a Better Life Experience (ABLE) accounts are designed to enable individuals with disabilities to save for and pay for disabilityrelated expenses.] The bill excludes from gross income a fringe benefit consisting of up to $100 per year (adjusted for inflation after 2017) of employer contributions to an employee's 529 or ABLE account. The employer contribution must be made: (1) to an account for which the designated beneficiary is the employee or a member of the employee's family, and (2) in connection with a payroll deduction contribution program established by the employer. The bill also: (1) expands the tax credit for small employer pension plan startup costs to include the costs of establishing a payroll deduction contribution program for 529 plans and ABLE accounts, (2) permits 529 funds to be used for education loan payments or charitable contributions without being subject to the additional tax for distributions that are not used for qualified higher education expenses, and (3) permits tax-free rollovers of funds between 529 and ABLE accounts for the benefit of the same beneficiary or a family member of the beneficiary. For the purpose of current law restrictions on the frequency of investment directions that a beneficiary or contributor may provide for a 529 or ABLE account, rebalancing investments among broad-based investment strategies established under the program is not an investment direction unless the beneficiary or contributor directs the specific investments within the strategies. The bill would amend title II of the SSA and the IRC to modify the portion of wages and selfemployment income subject to payroll taxes. The bill would amend title II of the SSA to improve Social Security benefits for widows and widowers in two-income households. The bill would provide for cost-of-living increases for certain federal benefits programs based on increases to the Consumer Price Index for Elderly Consumers. The bill would amend title II of the SSA to repeal the government pension offset and windfall elimination provisions. Introduced 1/13/17 referred to Introduced 3/20/17 referred to Introduced 3/16/17 referred to Introduced 2/28/17 referred to the Ways and Means Committee, among others. Introduced 2/21/17 referred to

8 Social Security Social Security Protection and Truth in Budgeting Act of 2017 HR 1113 Rep. DeFazio, D-OR Social Security Expansion Act HR 1114 Rep. DeFazio, D-OR Guaranteed 3 Percent COLA for Seniors Act of 2017 HR 991 Rep. Engel, D-NY Locality-based Social Security Benefits Act of 2017 HR 892 Rep. Meng, D-NY Notch Fairness Act of 2017 HR 867 Rep. Meng, D-NY The bill would amend title II of the SSA to ensure that the receipts and disbursements of the Social Security trust funds are not included in a unified federal budget and to provide that Social Security contributions are used to protect Social Security solvency by mandating that trust fund monies cannot be diverted to create private accounts. This bill amends title II of the SSA to: (1) increase the primary insurance amount for all eligible beneficiaries, beginning in 2023; (2) revise computation of cost-of-living adjustments to use the Consumer Price Index for Elderly Consumers; and (3) increase the special minimum primary insurance amount for lifetime low earners based on years in the workforce. This bill amends the IRC to: (1) apply employment and self-employment taxes to remuneration up to the contribution and benefit base and to remuneration in excess of $250,000, and (2) increase the tax rate on investment gain from 3.8% to 10% and allocate specified amounts of such tax revenue to the Social Security trust funds. The bill would require the establishment of a Consumer Price Index for Elderly Consumers to compute cost-of-living increases for Social Security benefits under title II of the SSA and to provide, in the case of elderly beneficiaries under such title, for an annual cost-of-living increase which is not less than three percent. The bill would adjust the amount of monthly oldage survivors, and disability insurance payments under title II of the SSA based on locality-based comparability payment rates. The bill would amend title II of the SSA to allow workers who attain age 65 after 1981 and before 1992 to choose either lump sum payments over four years totaling $5,000 or an improved benefit computation formula under a new 10-year rule governing the transition to the changes in benefit computation rules enacted in the Social Security Amendments of Introduced 2/16/17 referred to the Budget Introduced 2/16/17 referred to the Ways and Means and Education and the Workforce Committees. Similar bill (S 427) introduced in Senate on 2/16/17 by Sen. Sanders, I-VT. Introduced 2/9/17 referred to the Education and the Workforce Introduced 2/6/17 referred to Introduced 2/3/17 referred to

9 Social Security Savings for Seniors Act of 2017 HR 313 Rep. Blackburn, R-TN The bill would amend title II of the SSA to establish a Social Security Surplus Protection Account in the federal Old-Age and Survivors Insurance Trust Fund to hold the Social Security surplus, to provide for suspension of investment of amounts held in the account until enactment of legislation providing for investment of the trust fund in investment vehicles other than obligations of the United States, and to establish a Social Security Investment Commission to make recommendations for alternative forms of investment of the Social Security surplus in the trust fund. Introduced 1/5/17 referred to Source: Library of Congress, as of March 22, 2017 IRA = Individual Retirement Account DOL = Department of Labor ERISA = Employee Retirement Income Security Act IRC = Internal Revenue Code SSA = Social Security Act OASDI = Old Age, Survivors and Disability Insurance HR = House of Representatives S = Senate H.J. Res. = House Joint Resolution S.J. Res. = Senate Joint Resolution NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This newsletter does not constitute advice of any kind, including tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation. The information presented is based on current interpretation of pending retirement legislation and regulations. State laws may differ. All material is compiled from sources believed to be reliable and current but accuracy cannot be guaranteed. This document is for informational purposes only and is not to be construed as an offer to buy or sell any financial instruments. The opinions expressed are those of Jon Vogler, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd. s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. invesco.com/us LEGUP-NLR-2-E 04/17 Invesco Distributors, Inc. Invesco Advisers, Inc. US4272