Your Retirement Savings: What Changed with the Mid-Term Elections

Fulcrum Partners Executive Benefits News

It’s been just over a month since U.S. midterm elections yielded a partial change in command in Washington D.C. While the Republicans retained the Senate, Democrats won the House.

Right now, you’re probably spending long hours on the holiday hamster wheel, where you and your staff try to complete 8 weeks of work and projects in 5 and a half. But if you’re concerned about your retirement savings, the changes in Washington are worth pausing to consider.

Here is a summary of what is presently in play:

The Big Picture: Republicans control the Senate and Democrats control the House. Stalemates are inevitable with the two parties polarized on an alarming number of issues.

Democrats will outnumber Republicans 219 to 193 when the 116th Congress begins in January. Should they succeed in passing legislation, unless the law is backed by support from both the House and the Senate of a two-thirds majority, President Trump will still have the final say and the power of veto.

The Retirement Enhancement and Savings Act of 2018: This bill would amend the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA). As of the date this is being written, the Retirement Enhancement and Savings Act (RESA) still needs approval by Congress but is viewed as having strong momentum. Widely supported by many financial services companies and by the AARP, the bill encourages 401(k)-style retirement plans to offer annuities.

Another important component of RESA would allow small employers the opportunity to participate collectively in multiple-employer plans and to offer 401(k) plans to their employees. With multiple-employers involved, the fee burden on each small employer would be reduced. RESA could even come with a tax credit to small employers, which would help offset the cost of starting a new retirement plan. Such plans are currently available only if the employers are involved in an affiliation.

Other Important RESA Recommendations: The bill proposes repealing the current maximum age for traditional IRA contributions. Presently, anyone age 70.5 may not contribute to a traditional IRA, although he or she may contribute to a Roth IRA as long as s/he is still working. Additionally, the bill proposes repealing required minimum distributions for savers who have less than $50,000 in their retirement plans.

RESA is sponsored by Senators Orrin Hatch and Ron Wyden. Senator Hatch, the longest-serving Senate Republican, will be retiring, effective January 2, 2019.

You’ll find a summary of the Retirement Enhancement and Savings Act here: congress.gov/bill/115th-congress/senate-bill/2526

Pension Plans: In many states, pension plans were a hot topic for debate during the election with Republican gubernatorial candidates tending to favor reducing benefits (or requiring an employee contribution) and Democratic candidates generally fighting to protect state pension plans. Changes here may evolve on a state-by-state basis.

Social Security and Medicare: During their campaigns, Republicans and Democrats alike shied away from the topics of Social Security and Medicare. Republicans as a whole are on record as recommending either the reduction of benefits, the extension of eligibility age to draw benefits or a combination of both.

Eventually, both parties will have to address and deal with the elephant in the room. Per the 2018 Annual Report of the Social Security and Medicare Boards of Trustees, “the Trustees project that the combined trust funds (of Social Security and Medicare) will be depleted in 2034.”

Most working Americans do not feel that they are adequately prepared for retirement. Contact the team at Fulcrum Partners with your questions and concerns. Let us help you and your company navigate the road that lies ahead.

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