Congress is considering making improvements to the Retirement Enhancement and Savings Act (RESA). The proposed changes could make it easier for small employers to offer retirement plans to employees and simpler for all employers to offer 401(k) annuities.
Legislators passed RESA with bipartisan support in 2016. One of its key measures is authorization to start Multiple-Employer Plans (MEPs). The proposed changes also received bipartisan support in the Senate. AARP, financial service providers and stakeholders also support the changes, arguing small companies have a more difficult time offering retirement benefits, such as 401(k) plans, than large companies. The proposal encourages small businesses to band together and offer defined contribution plans. These plans would not require businesses to be related to join, as would be the case with a MEP. Instead, companies would form a Pooled-Employer Plan (PEP) to lower plan costs. Policymakers also want to improve the quality of retirement plans offered through a PEP compared to what was offered with a MEP, including simpler plan administration and less fiduciary liability for small employers. The proposed legislation also would amend the rules for annuities to make them easier for employers to offer as part of a 401(k). An annuity is a contract between a plan participant and a third party (usually an insurance company),where the participant makes a lump-sum payment in exchange for a guaranteed income for a specified time or for life. Taxes on earnings are deferred until the funds are withdrawn. Annuities can also provide death benefits and long-term care benefits. If approved, the legislation would require regularly issued statements to 401(k) plan participants to help them better understand how their current account balance translates into a monthly retirement income stream.