• Will We Finally See Adoption of the Retirement Enhancement and Savings Act/Family Savings Act in 2019?
  • October 24, 2018 | Author: Charles A. Bruder
  • Law Firm: Norris McLaughlin, P.A. - Bridgewater Office
  • A legislative vehicle that has periodically enjoyed bipartisan support in the past was reintroduced to Congress in 2018 and may just see a resurgence early next year, albeit under a different moniker.

    The Retirement Enhancement and Savings Act (“RESA”), a collection of proposed enhancements to voluntary retirement plans, was approved by the Senate Finance Committee in 2016, but saw no further legislative action. RESA was re-introduced to Congress in 2018 and referred back to the Finance Committee, but again Congress took no action to advance its provisions.

    In late September, however, the House of Representatives passed the Family Savings Act of 2018 (the “Family Savings Act”), a proposal that contains many of the provisions of RESA. While the Family Savings Act awaits possible Senate approval (which will happen only after the upcoming mid-term elections), a review of certain of its provisions suggests that perhaps this Act will be enacted in 2019:

    • Multiple Employer Plans and “One Bad Apple” Rule: Under the provisions of the Family Savings Act, a multiple employer retirement plan (MEP) is not disqualified merely because one participating employer fails to take certain required actions to maintain the qualified status of the MEP (Note: this provision is consistent with the Executive Order issued by President Trump in late August [link here]). MEPs with fewer than 1,000 participants are also eligible for certain simplified annual filing requirements.
    • Safe Harbor 401(k) Plans: Under the Family Savings Act, (i) certain “safe harbor” notice requirements are generally eliminated; and (ii) 401(k) plans are permitted to be amended to become safe harbor plans during the plan year.
    • IRA Contributions: The Family Savings Act allows certain taxable amounts paid in pursuit of graduate/postdoctoral studies or research to be considered compensation for IRA contribution purposes. It also repeals the prohibition against IRA contributions by individuals who are over age 70 ½.
    • Required Minimum Distributions: Under the Family Savings Act, required minimum distributions (RMDs) are not required for aggregated tax-qualified accounts of less than $50,000.
    • “Universal Savings Accounts”: The Family Savings Act creates “universal savings accounts” under which individuals may contribute up to the lesser of $2,500 or such individual’s compensation for the year (with certain spousal coordination rules for lower income taxpayers), with distributions from the accounts generally being tax-free.
    • Expanded 529 Plan Provisions: The Family Savings Act (i) allows 529 plan distributions to be used for books, supplies, equipment and fees associated with apprenticeship programs; (ii) permits tax-free distributions for homeschooling expenses; (iii) expands qualifying distributions for beneficiaries who attend elementary or secondary school; and (iv) allows qualified distributions of certain amounts for the repayment of qualified education loans.
    • Early Withdrawal Penalty Exclusion: Under the Family Savings Act, a 10% early withdrawal penalty does not apply to distributions for qualified birth and adoption expenses up to $7,500. Certain recontribution rules also apply to such distributions.
    While the Family Savings Act remains to be approved by the Senate and therefore enacted into law, many of its provisions enjoy widespread support among both individuals and employers. These provisions generally expand both the availability of savings opportunities for taxpayers as well as permitting new options for employers to enhance their employee benefits offerings.