Federal spending compromise bill includes retirement and health benefit plan provisions

Congress has approved two bills to fund the federal government for the remainder of fiscal year (FY) 2020, which ends September 30, 2020. The president will sign the bills.

One of the bills, the “Further Consolidated Appropriations Act, 2020” (H.R.1865), cleared the House on December 17 by a vote of 297-140. It covers “domestic” spending items and includes provisions directly or indirectly affecting benefit programs sponsored by employers. The Senate approved the measure on December 19 by a vote of 71-23.

In the retirement arena, H.R.1865 includes provisions from the “Setting Every Community Up for Retirement Enhancement (SECURE) Act,” which cleared the House in May. The bill calls for:

  • Simplification of the 401(k) safe harbor rules
  • An increase, from age 70-1/2 to age 72, in the required beginning date for mandatory distributions
  • A requirement that 401(k) plans enable participation by part-time workers who satisfy a specified employment service rule
  • A requirement that defined contribution (DC) plan (and IRA) distributions generally be made to nonspouse beneficiaries within 10 years of the death of the account holder
  • Permission for DC plans, including 403(b) or governmental 457(b) plans, to make direct trustee-to-trustee transfers of lifetime income investments to another employer-sponsored retirement plan (or IRA)

The bill also includes provisions targeting specific retirement plan types, such as “open” multiple employer plans (MEPs) for unrelated employers; Pension Benefit Guaranty Corporation (PBGC) premiums paid by cooperative and small employer charity (CSEC) pensions; retirement account rules for church-controlled organizations; special rules for individuals when certain natural disasters strike; funding rules for community newspapers; and tax credits for small-employer plan start-up costs. In addition, the bill significantly increases the penalties for retirement plan filings and for employers failing to file withholding notices, and includes “administrative improvements” to plan adoption and filing dates, disclosures, and nondiscrimination requirements for “closed” pension plans.

In the health benefits area, the bill permanently repeals the 40% excise tax (the “Cadillac” tax) on “high-cost” employer-sponsored health plans and the annual health insurance tax (HIT) on health insurers. H.R.1865 extends the fee supporting the Patient-Centered Outcomes Research Institute (PCORI) through FY2029 and similarly extends the fees on health insurers and self-insured health plans of $2 per average number of lives covered.

The bill also includes one-year tax “extenders” (through 2020) for the tax credit for employers that provide certain paid family leave, the Work Opportunity Tax Credit for hiring individuals from targeted groups, and the Indian Employment tax credit for businesses that employ American Indians or their spouses. It also extends the credit for health insurance coverage for certain individuals receiving Trade Adjustment Assistance or pension benefits paid by the PBGC.

A forthcoming Client Action Bulletin will provide further details, including the effective dates of the various provisions in H.R.1865. For additional information about the bill’s provisions affecting employer-sponsored retirement or health benefit programs, contact your Milliman consultant.

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