More Detail From Rep. Neal’s Automatic Retirement Plan Act

Representative Richard Neal, D-Massachusetts, recently introduced the Automatic Retirement Plan Act of 2017, which would require employers to have a retirement plan, either a 401(k) or 403(b) plan, and automatically enroll participants into the plan.

In addition, the bill would enhance employers’ ability to participate in open multiple employer plans, limit the formation of state-sponsored automatic enrollment individual retirement account (IRA) plans and permit workers to have 50% or more of their distributions invested in a “form that guarantees them lifetime income.”

Starting in 2020, the bill would be applied to all employers, except those with fewer than 10 employees, those in business for less than three years and those qualifying as governmental or church organizations. For employers with 100 or fewer employers earning at least $5,000 in 2021, the bill would apply in 2022. Should an employer fail to comply with the law, they would be fined $10 per employee each day.

However, on the date the new bill would be signed into law, employers with existing qualified plans, whether 401(k)s, 403(b) plans, simplified employee pension (SEP) plans, savings incentive match plans for employees of small employers (SIMPLE), or individual retirement account (IRA) plans, would be considered to be “grandfathered” and could continue their offerings uninterrupted for six years. For organizations with such plans that have 100 or fewer employees and that earned at least $5,000 in the year prior to the bill being signed, they would be “grandfathered” for eight years after the bill would be signed. After this time has elapsed, they would be subject to the new law.

The law would require organizations to defer at least 6% of employees’ salaries and include automatic escalation, although the amount of the escalation is not specified in the bill. It would also permit workers to ask for 50% or more of distributions from their balances to be in the form of an investment that guarantees lifetime income, i.e. an annuity.

With regard to multiple employer plans, the bill would lift the current restriction that an employer pairs only with companies with common ownership or common business purposes. In addition, one employer’s compliance failure would not jeopardize the entire plan, and the bill would require the Internal Revenue Service (IRS) to provide guidance on the common plan administrator’s duties. Furthermore, small employers in these types of plans would be exempt from certain fiduciary responsibilities.

The bill would permit state-sponsored automatic IRAs in existence before its enactment to continue, but not permit new ones to be created.

The full text of the bill can be viewed here.