Compliance September 11, 2018

Many RESA Provisions Included in ‘Tax Reform 2.0’

One of three bills introduced this week as part of “Tax Reform 2.0,” the Family Savings Act includes many of the provisions written into the popular RESA legislation.

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Republican members of the House Ways and Means Committee have introduced three bills aimed at advancing their “Tax Reform 2.0” agenda ahead of the November mid-terms, including the “Protecting Family and Small Business Tax Cuts Act of 2018,” the “Family Savings Act of 2018,” and the “American Innovation Act of 2018.”

House Ways and Means Committee Chairman Kevin Brady, R-Texas, suggests the three bills “collectively build on the growing economic successes of the Tax Cuts and Jobs Act.”

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“These bills constitute Republicans’ Tax Reform 2.0 package and will lock in the individual and small business tax cuts made law in the Tax Cuts and Jobs Act, make it easier for families and businesses to save for retirement, and boost American innovation by growing startup businesses,” he adds.

The most wide-ranging of the proposals is H.R. 6760, the Protecting Family and Small Business Tax Cuts Act, which seeks to make permanent many of the temporary tax cuts implemented as part of the Tax Cuts and Jobs Act of 2017. Among other changes, under H.R. 6760, the near-doubling of the standard deduction would be made permanent, along with the doubled child tax credit and the 20% pass-through deduction for businesses.

The second bill, H.R. 6757, or “the Family Savings Act,” is probably of the most relevance for retirement industry stakeholders—as it includes many of the provisions written into the popular Retirement Enhancement and Savings Act. Title I of the bill would allow for wider adoption of multiple employer plans, referred to here as “pooled employer plans.” Title I further seeks to ease the offering of safe harbor 401(k) plans, and it would adjust “certain taxable non-tuition fellowship and stipend payments treated as compensation for individual retirement account (IRA) purposes.”

Other sections of Title I of the Family Savings Act seek to repeal the maximum age for traditional IRA contributions, and to prohibit plans from making loans “through credit cards and other similar arrangements.” Additionally, this part of the bill includes proposals for improving the portability of lifetime income investments: “Except as may be otherwise provided by regulations, a trust forming part of a defined contribution plan shall not be treated as failing to constitute a qualified trust … solely by reason of allowing—(i) qualified distributions of a lifetime income investment, or (ii) distributions of a lifetime income investment in the form of a qualified plan distribution annuity contract, on or after the date that is 90 days prior to the date on which such lifetime income investment is no longer authorized to be held as an investment option under the plan.”

Other items addressed in Title I include the treatment of custodial accounts on termination of section 403(b) plans; clarification of retirement income account rules relating to church-controlled organizations; exemption from required minimum distribution rules for individuals with certain account balances; clarification of treatment of certain retirement plan contributions picked up by governmental employers for new or existing employees; and elective deferrals made by members of the “ready reserve of a reserve component of the armed forces.”

Title II of the Family Savings Act provides for certain technical modifications of nondiscrimination rules “aimed to protect older, longer service participants.” Likely of some interest to retirement industry stakeholders, Title II calls for further “study of appropriate Pension Benefit Guaranty Corporation premiums.”

Apart from calling for an expansion of 529 college savings plans and establishing “penalty free withdrawals from retirement plans for individuals in case of birth of child or adoption,” Title III calls for the creation of a tax law framework supporting the creation of “tax-exempt universal savings accounts.” These would basically be tax-advantaged savings accounts with an annual contribution limit of $2,500.

The third and most narrowly focused bill introduced this week is formally titled H.R. 6756, the “American Innovation Act of 2018.” It runs just 15 pages and calls for various simplifications and expansions of tax deductions for start-up organization expenditures.

Data and Research September 11, 2018

Majority of Americans Do Not Feel They Have Recovered from Great Recession

Seventy-nine percent of Americans say they don’t fully understand what happened during or what caused the financial crisis.

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Although the economy is booming and the stock market has more than quadrupled in value since the financial crisis of 2008, 65% of Americans say they have not fully recovered financially, Betterment learned in a survey.

Seventy-nine percent say they don’t fully understand what happened during or what caused the financial crisis. Fifty percent do not think the S&P 500 has gone up in value in the past 10 years, and 18% think it has declined.

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Eighty-three percent do not think Wall Street is any more ethical than it was in 2008. More than one in four people have stopped saving for retirement or contributing to their 401(k). Two out of every three people say they are saving less than they did in 2008. However, 29% say they are making  a concerted effort to save more today than they were in 2008.

The survey also found that those who invested in 2008 and lost money are more likely to feel recovered and optimistic. Eighty percent of people who invested money in 2008 lost money but have since felt that they have recovered. Forty-one percent feel fully recovered.

Half of Americans are investing as much or more than they did 10 years ago, and nearly a quarter consider themselves even more risk tolerant than they were in 2008.

“The data reinforced a lot of what we already feel and see on Wall Street,” says Dan Egan, vice president of behavioral finance and investments at Betterment. “People are slow to trust big banks again, and are understandably worried this will happen again. But what we find extremely hopeful is the staying power of those who rode the wave and came out on the other side. People who were investing in 2008 felt the losses, but also witnessed the recovery. They know another dip is inevitable, but know that as long as they don’t get greedy or fearful, the rewards outweigh the costs.”

Market Cube conducted the survey of 2,000 people for Betterment in July and August.

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