NAGDCA News | Q4 2021

By Groom Law Group

President Signs Infrastructure Bill into Law

The Infrastructure Investment and Jobs Act (the “IIJA”) was signed into law by President Biden on November 15, 2021. Although the majority of the IIJA relates to infrastructure, the package has two retirement related provisions:

• IRS Deadlines for Federally Declared Disasters: the IIJA expands and streamlines the automatic 60-day extension of several pension-related IRS deadlines for “federally declared disasters”. This change should be beneficial to governmental plan participants impacted by federally declared disasters.
• Interest Rate Smoothing: the Act also extends the interest rate smoothing provisions affecting minimum funding requirements for most defined benefit plans. These provisions stemmed from the Moving Ahead for Progress in the 21st Century Act (“MAP-21”), and have been extended and enhanced several times. Most recently they were extended in the American Rescue Plan Act of 2021 (“ARPA”).  Although governmental plans are not subject to these rules, NAGDCA members with defined benefit plans may be interested in these changes as part of their periodic reviews of their plan funding methodologies.

Additionally, on December 3, 2021 President Biden signed a bill to fund the government through February 18, 2022. This stopgap measure provided funding for key federal agencies, but left many policy and appropriations issues unresolved.

House Passes Build Back Better Act

On November 19, 2021, the U.S. House of Representatives voted to approve the Build Back Better Act (H.R. 5376, the “BBB Act”). This budget reconciliation bill includes several retirement provisions, as outlined below, as well as much of President Biden’s economic and social policy agenda, including universal pre-K and an extension and enhancement of the child tax credit. The bill passed on a party line vote of 220 to 212, with all but one House Democrat voting for the bill and all House Republicans voting against it.

Senate Majority Leader Chuck Schumer (D-NY) has publicly stated he expects to take the bill up prior to the New Year. Likely the Senate will make substantial changes to the bill in order to secure enough votes for passage. Under discussion are changes to paid family leave, immigration-related provisions, and state and local tax (“SALT”) deduction relief.

Furthermore, Finance Committee Chairman Ron Wyden (D-OR) has indicated the Senate may add additional tax raising provisions, including a new billionaire surtax.  This would result in the House having to vote again on the Senate-passed version before the bill can to go to President Biden for his signature.

The outlook for passage of this bill is unknown, particularly given the $1.7 trillion cost of implementation. The BBB Act includes roughly $1.4 trillion in corporate and individual tax revenue raisers over ten years. Additionally, it is anticipated that the BBB Act would result in hundreds of billions of dollars in increased revenue from IRS enforcement.

Key Retirement Provisions in Build Back Better as Passed by the House

The BBB Act slims down the retirement provisions from a prior version of the legislation approved by the House Ways and Means Committee in September.  The version that passed the House does not include an employer mandate to offer automatic retirement plans or expand the Saver’s credit. The following are the key retirement provisions in the bill.

Limitations on High-Income Taxpayers with Large Account Balances
The BBB Act as passed by the House retained a provision limiting high-income taxpayers with very large IRA and/or defined contribution account balances. Specifically, the BBB Act would limit contributions to Roth or traditional IRAs for years in which a taxpayer’s income is over $400,000 per year ($450,000 for married filing jointly (“MFJ”) and $425,000 for head of household (“HH”)) if that individual has more than $10 million combined in aggregate IRA and defined contribution retirement accounts.  Contributions to an IRA exceeding the limit would be subject to an annual 6% excise tax.

For individuals who meet the taxable income thresholds and whose account balances exceed $10 million, the BBB Act would create a new Minimum Required Distribution of 50% of the amount in excess of $10 million.  If an individual’s aggregate account balances exceed $20 million, the BBB Act would require the individual to first withdraw Roth account balances in either the amount necessary to reach $20 million or the balance of the Roth accounts, whichever is less.  After the Roth withdrawals, the individual may choose how to reduce their balances to $10 million.  Special increased withholding rules also apply.  These amounts would be eligible for distribution – notably, the bill would clarify that distributions of excess amounts are not taxable (e.g., are treated as a “qualified distribution” under the Roth rules).

Additionally, the bill requires plan administrators to report to the IRS and employees regarding vested accounts with balances in excess of $2.5 million.

Unlike the previous version, the BBB Act now contains a delayed effective date for these provisions, which would be effective for tax years (plan years for the reporting provision) beginning after December 31, 2028.

Although the provision is unlikely to apply to most governmental plan members, these new rules could impact governmental defined contribution plans, especially where a plan covers long-term highly paid employees or, because of the aggregation rules in this provision, an individual has separate high balance accounts from employment outside of their current plan.

Elimination of “Back-Door” Roth IRA and In-Plan Roth Conversions of After-Tax Amounts
The House did not alter the provisions from the September version of the BBB Act that would prohibit taxpayers with taxable income above $400,000 ($450,000 MFJ, $425,000 HH) from executing a Roth conversion from a traditional IRA or employer-sponsored plan, effective after December 31, 2031.

Additionally, the bill prohibits all Roth conversions of after-tax contributions within qualified plans or IRAs, effective after December 31, 2021. Therefore, if the bill remains as currently drafted, in plan Roth conversions of after-tax contributions and Roth IRA conversions of non-taxable amounts would not be allowed—regardless of income level.  After-tax contributions have been receiving increased attention from governmental defined contribution plans and thus could be affected by this provision.

Update on SECURE 2.0, RISE Act, and Cardin-Portman

Although the BBB Act is taking up much of the political oxygen in Washington as 2021 draws to a close, it largely does not impact governmental plans. However, as previously reported, there are a few bills that Congress is considering which do.

SECURE 2.0, officially titled Securing a Strong Retirement Act (H.R. 2954), contains two of NAGDCA’s top priorities: allowing 403(b)s to invest in collective investment trusts (“CITs”) and eliminating the “first day of the month” rule for 457 plans. Action has not been taken on this bill since it was approved by the House Ways and Means Committee in May by a unanimous voice vote. Although it originally appeared possible that SECURE 2.0 components would be included in the BBB Act, the version of the BBB Act passed by the House did not bear that out.

On November 5, 2021, the House introduced the related Retirement Improvement and Savings Enhancement (“RISE”) Act. The RISE Act is sponsored by House Education and Labor Committee Chairman Bobby Scott (D-VA) and ranking member Representative Virginia Foxx (R-NC), so the bill has strong bipartisan support.

The RISE Act incorporates many provisions from the Ways and Means version of SECURE 2.0, although it does not include the 403(b) and 457 provisions noted above. It does, however, allow 403(b) plans to participate in multiple employer plans (“MEPs”) and pooled employer plans (“PEPs”). The bill was considered and reported out by the Education and Labor Committee on a unanimous voice vote on November 11, 2021.

It is expected that the RISE Act will be merged with the Ways and Means version of SECURE 2.0 in the House Rules Committee before moving to the full House for a vote on the floor.

There has not been any recent action on the Retirement Security and Savings Act, also known as Cardin-Portman (S. 1770).  This bill contains the provisions noted above in SECURE 2.0, as well as:

• Allowing retirement plan participants to make certain charitable distributions directly from their accounts;
• Allowing non-spousal beneficiaries of inherited IRA assets to roll over such assets into their employer-based plans;
• Giving Roth contributions to an employer-plan the same treatment as Roth IRA assets by exempting them from the lifetime required minimum distribution rules; and
• Allowing Roth IRA assets to be rolled into an employer-sponsored plan.

Cardin-Portman has been referred to the Senate Finance Committee, but is unlikely to receive consideration before the end of the year.

EBSA Nomination

The nomination of Lisa Gomez, President Biden’s choice to serve as Assistant Secretary for the Employee Benefits Security Administration (“EBSA”) within the Department of Labor (“DOL”), was approved by the Senate Committee on Health, Education, Labor, and Pensions (“HELP”) on December 2, 2021. Her nomination advanced by a vote of 12-10. Senator Lisa Murkowski (R-AK) was the only Republican who voted in favor. The nomination now moves to the Senate floor, which is likely to be a largely party-line vote, although some Republican votes remain in play.  It is unclear when the full Senate will consider the nomination.

SAVE THE DATE – 2022 DC FLY-IN

We’re excited to announce the first annual DC Fly-In scheduled for March 2022. Plan sponsors will have the opportunity to help NAGDCA strengthen our message around key legislative priorities and reinforce NAGDCA as the primary resource for policymakers on public sector defined contribution plan issues.

The Fly-In offers NAGDCA government members a unique Opportunity to:

• • learn about legislative priorities that could impact your plan.
  • join fellow plan sponsors in meetings with legislative staff.
  • engage in discussions with congressional staff and your elected representatives.
  • be part of the process that shapes public sector defined contribution plans in years to come.

Click here to learn more

SAVE THE DATE – 2022 INDUSTRY ROUNDTABLE

The Industry Roundtable offers attendees a unique opportunity to meet and discuss important legislative, administrative, and strategic issues facing public sector DC plans. The meeting is exclusively for industry representatives and is designed to address concerns specific to their needs.

The agenda will provide attendees with the maximum amount of information and opportunity for creative participation, while at the same time limiting your time away from the office.

Click here to learn more.

2021 NAGDCA ANNUAL REPORT PUBLISHED

NAGDCA recently published its 2021 Annual Report that provides an overview of the association’s membership and activities over the past year.

Click here to take a look back at 2021.

SPONSORSHIP OPPORTUNITIES

NAGDCA would like to thank our industry partners for your continued support as members and sponsors over the years! We’re excited to offer sponsorship packages for 2022 that provide valuable year-round benefits as well as recognition during the annual conference on September 18-21 in Baltimore, MD.

Click here for more information about the sponsorship benefits, and please don’t hesitate to contact us with any questions.

MEMBER NEWS

Congratulations to Michelle Berklacich on her recent retirement! Berklacich spent 35 total years in public service with 24 of those years at California Savings Plus plan. She has been an active and supportive member of NAGDCA over the years and will be missed by all involved with the association.

We wish you a happy and fun retirement.

HAPPY HOLIDAYS

Happy holidays from NAGDCA! Headquarters will be closed 12/23-1/2.