Retirement Savings Plans

Washington Perspective: New Administration Congress Examine Changes That May Impact Retirement

March 26, 2017

President Trump and Congress are examining potentially significant changes that may affect retirement benefits for public sector employers and employees.

Affordable Care Act (ACA) — Repeal, modification, and/or replacement of the ACA has been stated as an important goal of the new administration and Republicans in Congress. In addition, there has been a significant reduction in the number of insurance companies participating in the state health exchanges.

The House of Representatives, with substantial involvement by Speaker Paul Ryan (R-WI), had drafted legislation that would significantly modify the ACA. On March 17, the bill was passed by the House Budget Committee and was expected to advance to the full House for further consideration. However, the bill was unable to garner sufficient support and was pulled by Speaker Ryan prior to a vote by the full House. ACA reform, at this point, remains unclear.

A number of governments have considered utilization of the state health exchanges as a lower-cost alternative to existing retiree health care programs. Until ACA reform occurs, the use of state health exchanges as a viable alternative remains uncertain. 

Tax Reform — The President and Congress have identified tax reform as a priority, and have promised a reduction in individual and corporate income tax rates coupled with elimination of many tax deductions and exclusions. A potential reduction in individual income tax rates could impact the relative attractiveness of tax-preferred retirement savings and tax-exempt municipal bonds.

Since the ACA reform bill was pulled, the President and Congress have now turned their focus to tax reform.

Although House Republicans have said that retirement benefits are tax incentives that will not be eliminated, numerous tax reform proposals since 2010 have included substantial changes to retirement plans and savings. Potential changes include:

  • Limits/reductions on plan contributions or accruals, including the freezing for 10 years of future Cost of Living Adjustment (COLA) increases.
  • Requiring any plan contributions over $9,000 (i.e., half of the contribution limit) to be contributed on an after-tax Roth basis.
  • Limits to the tax rate at which upper-income taxpayers can claim itemized deductions, including pre-tax employee contributions, and other preferences to reduce tax liability.
  • Requirements that most non-spouse beneficiaries of deceased IRA and retirement plan participants receive proceeds of plan assets within five years of the death of the participant/owner. Under current law, payments can be "stretched" over the beneficiary's life expectancy. 

Other proposed changes, include:

  • Modifications to the Required Minimum Distribution (RMD) rules to gradually increase the initial RMD age from 70½ to 73 by 2028, with future adjustments based on increases in life expectancy.
  • Streamline and simplify certain plan administration rules applying to 401(k), 403(b) and 457(b) retirement plans.

We will continue to monitor these proposals and report on any developments.

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