Proposed Bill Aims to Encourage Retirement Plan Offerings

U.S. Representative Ron Kind (D-Wisconsin) has introduced the Small Businesses Add Value for Employees (SAVE) Act of 2014.

Kind says the bill, co-sponsored by U.S. Representative Dave Reichert (R-Washington), would improve existing SIMPLE IRA and SIMPLE 401(k) retirement plans to make it easier for small businesses to offer savings plans to their employees.

The bill would amend Internal Revenue Code provisions relating to employer-established savings incentive match plans for employees (SIMPLEs) to (1) repeal certain restrictions on rollovers from SIMPLE IRAs; (2) allow employers to elect to terminate qualified salary reduction arrangements at any time during the year; (3) repeal the enhanced 25% penalty on premature withdrawals made from SIMPLE IRAs within the first two plan years; and (4) allow additional non-elective employer contributions to SIMPLE IRAs.

The bill would also establish automatic deferral IRAs, increase the tax credit for small employer pension plan startup costs, and establish multiple small employer retirement plans that provide for automatic employee contributions.

The automatic deferral IRAs would require a minimum 3% deferral, allowed to be increased automatically by 1% each year, up to 15% of an employee’s salary. If participants did not make investment elections, the contributions would be “invested as provided in regulations prescribed pursuant to subparagraph (A) of section 404(c)(5) of the Employee Retirement Income Security Act of 1974,” the bill says.

The bill includes a modification of the current automatic enrollment safe harbor, which would increase the default deferral percent to 4% instead of 3% and allow automatic escalation of deferrals by 1% each year up to 15% of compensation, instead of 10% of compensation.

In addition, a new “secure deferral arrangement” is introduced to allow employers to automatically meet nondiscrimination requirements. The arrangement calls for automatic enrollment at a 6% deferral rate, to be increased by 2% in year two and 2% in year three for a maximum of 10%. Employer matching contributions are required at a rate of 100% of the first 1% of deferrals, 50% of deferrals greater than 1% up to 6% of salary, and 25% of deferrals greater than 6% up to 10% of salary. Employers receive a tax credit for matching contributions up to 2% of an employee’s salary for the first five years the employee participates in the arrangement.

The bill also allows a transfer of unused balances in flexible spending arrangements to a qualified retirement or eligible deferred compensation plan, requires the Office of Financial Education of the Department of the Treasury to develop and implement an outreach plan to educate small businesses about the types and benefits of available retirement plans, and requires the Secretaries of the Treasury and Labor to develop recommendations for small businesses to improve retirement outcomes.

There are also provisions that would encourage multiple employer pension plans for employers that do not share a common interest.

Full text of the bill can be viewed here.