Small companies can
easily set up a 401K plan for employees and investment firms help them, because
they are always looking for investors. These 401k plans require no company
match contributions.
There is no need to
allow the federal government to extend its tentacles to overcomplicate private
retirement plans. This Bill introduces yet another federal welfare program that
could be expanded beyond belief.
Ready for a Government-Run 401(k)? by Nevin
E. Adams, JD, 10/3/18.
Legislation has been introduced in the
U.S. House of Representatives that would create a parallel government-run retirement savings program – and one that could undermine the 401(k),
particularly for small business owners.
The Portable Retirement and Investment
Act of 2018 (H.R. 6990), just introduced in the House by Rep.
Jim Himes (D-CT), would establish something called a “Portable Retirement and
Investment Account” (PRIA) that would be opened at birth (or whenever one files
for a Social Security number).
The bill provides for a $500 federal
government contribution for children whose parents qualify for the Earned
Income Tax Credit, and, like the defunct MyRA program, caps the initial account at
$15,000 when the holder turns 18, and then provides for transfer to another
PRIA. And that’s where things start to get “complicated.”
PRIAs would be overseen by a board and a
director, the latter selected by the President from among members of the board.1
The PRIA trustee will act as a fiduciary
to the account “…under rules similar to those applicable to an ERISA fiduciary
under section 404 of the Employee Retirement Income Security Act of 1974,”
specifically that they are to discharge their duties in the sole interest of
the account holder.
As for contributions – the legislation
provides that any employer who permits wages to be paid by electronic funds
transfer “shall” permit workers to direct a portion of their wages to their
PRIA. It also allows employers to establish automatic enrollment/contributions
into the PRIA. There are limits to those contributions, matching those of
401(k), 403(b) and 457 plans ($18,500 in 2018), and a provision for catch-up
contributions ($6,000 in 2018). In another familiar element, employer
contributions are allowed – although at this point, the bill’s reference to
nondiscrimination testing is pretty vague.
Distributions from PRIAs can be rolled
over without incurring taxes, if done so within 60 days – but only to another
PRIA or an annuity. While PRIA balances are ineligible for rollover to
qualified plans, the legislation would permit rollovers from 401(k), 403(b), 457, or
409A accounts into PRIAs.
Speaking of distributions, at a
participant level, the rules that apply to ERISA qualified plans are mirrored
here; counted as gross income (and taxed accordingly), 10% penalty applied if
distribution occurs before age 59½, exceptions for distributions made on account of disability or unemployment after age 55. Loans are permitted, subject to the same basic rules on
repayment and taxation that apply to qualified plans.
One might well wonder why the
congressman would feel the need to construct a parallel (and largely identical)
alternative to the current private retirement system. And then you realize that
the legislation calls on the PRIA director to, “each year on a competitive
basis,” award a contract to “an entity” in the private sector to act as trustee
of all portable retirement and investment accounts, and that each PRIA is to
be invested in a lifecycle fund provided by the trustee.
The Board is directed to manage the fund
in the same manner as the federal government’s Thrift Savings Fund.
In essence, the bill constructs a
single-provider system established and overseen by the federal government, one
that in other respects seems designed not only to replicate many of the key
aspects of the private sector’s current system – except that when it comes to
rollovers, it’s a one-way street.
Or, as American Retirement Association
CEO Brian Graff explains it, “This is yet another example of a member of
Congress thinking that the government always does it better. It’s particularly
galling to introduce this while they are finally close to getting open MEPs
enacted. Could they at least give that a chance first!”
Footnote - The director is to be drawn from a
member of the PRIA Board which is to oversee the program – a board consisting
of:
3
members appointed by the Secretary of the Treasury
3
members appointed by the Secretary of Labor
2
members appointed by the PBGC
1
member appointed by the Director of the Bureau of Consumer Financial
Protection.
Norb Leahy, Dunwoody
GA Tea Party Leader
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