NAIFA Board of Trustees
NAIFA Congressional Council
NAIFA Government Relations Committee
NAIFA Government Relations Chapter Chairs
NAIFA Political Action Committee
NAIFA Grassroots Involvement Committee
May 10, 2021
Congressional Conference: NAIFA’s May 25-26 Congressional Conference is less than two weeks away. If you haven’t already, please register now for this all-online virtual conference that will be key to a successful defense against adverse tax proposals that could hurt permanent life insurance, investments, health insurance, and employer-provided benefits.
We now know the tax increases President Biden is proposing: an increase in the corporate and top individual tax rates, repeal of step-up in basis (potentially with a rule that makes transfers at death taxable events), and a hike in the capital gains tax rate. We also know that Congress will write the actual legislation and that more adverse tax proposals may emerge from that process. We already see proposals to add a wealth tax and a financial transaction tax (FTT), to tax annual gains in investments (that could include permanent life insurance), whether or not the asset is sold or the gains are otherwise realized, repeal or modification of the Section 199A 20 percent non-corporate business income deduction, and changes to estate tax planning techniques. Any of these could find their way into the legislation Congress will be crafting and considering over the next few weeks.
Tax: Congressional tax writers report considerable push-back on many of the proposed tax increases in President Biden’s “Build Back Better” initiative (the American Jobs Plan/AJP and the American Families Plan/AFP). Among the proposals getting stiff resistance are the 28 percent hike in the corporate tax rate (although at the moment, it does appear that Congress may accept a 25 percent corporate rate, which would be up from current law’s 21 percent), the repeal of step-up in basis (and the likely rule that would go with it that would trigger tax liability on inherited assets at the time of inheritance), and the increase in the capital gains rate (to 39.6 percent for those earning $1 million or more in a year).
Republicans are united in opposition to changing any of the 2017 tax reform law’s rules, but some Democrats are also expressing skepticism over these proposals. And Democrats can’t afford to lose any votes in the Senate and only three in the House.
Plus, we don’t yet know what other adverse tax proposals will emerge (although it’s a very good bet that more will become part of the Congressional legislation). The possibilities are many (and scary): a wealth tax, a financial transaction tax, estate planning (trust) rules, a change in the 199A 20 percent deduction for non-corporate business income, an investment income tax, more rate changes (especially in the estate and gift tax), etc. How extensive the risk we face is should become clearer by mid-summer, if not sooner. Stay tuned.
Worker Classification: Last week, the Department of Labor (DOL) officially and formally rescinded the Trump-era worker classification rule and promised vigorous enforcement of the historical multi-factor control test that has governed whether a worker is an employee or an independent contractor. DOL stopped short of saying they would initiate a new rulemaking initiative, but Washington insiders expect the Department to do just that—with California’s ABC test (without California’s exceptions, including for insurance agents) as their starting point. We’ll keep you posted as this issue develops.
Retirement Savings: Last week, on a unanimous and bipartisan basis, the House Ways & Means Committee approved H.R.2954, a second-generation retirement savings bill usually referred to as “SECURE 2.0.” The “Securing a Strong Retirement Act” (the bill’s official name) makes 42 largely helpful rules changes to enhance retirement savings opportunities. SECURE 2.0 is now ready for a vote by the full House, but as yet, no date for House floor action has been set. The bill does have widespread bipartisan support, though, and is expected to pass when the House votes on it.
Among the provisions contained in H.R.2954 are:
- A rule that would require new 401(k) plans to include an automatic enrollment provision—subject to a rule that allows employees (participants) to opt-out
- An increase in the age at which required minimum distributions (RMDs) must be taken from 72 to 75 (phased-in—the age would go to 73 in 2022, to 74 in 2029, and to 75 in 2032)
- An increase (to $10,000) in catch-up contribution authority for those aged 62, 63, and 64—under Roth rules—for 401(k) and 403(b) plans, and to $5,000/year at ages 62, 63, and 64 for SIMPLE plans; in addition, the bill would index the IRA catch-up contribution limit for inflation
- A reduction in the time a long-time part-time worker must work prior to being eligible to participate in an employer’s retirement savings plan from three years to two years
- Authority for 403(b) plans to participate in MEPs and PEPS (Multiple Employer Plans and Pooled Employer Plans)
- Enhancement of the small employer retirement plan start-up cost tax credit—the tax credit would increase from 50 percent to 100 percent for employers with up to 50 employees, plus the amount of the credit would be increased for five years by a percentage of the amount contributed by the employer to its employees, up to a per-employee cap of $1,000 (the percentage starts at 100 percent in years one and two and phases down by 25 percent per year until year six)
- A rule that would allow student loan payments to qualify for employer matching payments
- A rule that would require plan statements to be distributed on paper once per year (quarterly statements could be transmitted electronically)
- A missing participant program administered by the PBGC (Pension Benefits Guaranty Corporation) that would make it easier for plan participants to find “missing” vested retirement benefits—this provision also increases the mandatory cash-out cap from $5000 to $6000
- Modification of the rules that allow direct-from-the-plan contributions to charities that would comply with the RMD rules
- Modification of the error resolution/excess contribution rules that would reduce the penalty for corrected RMD failures to 25 percent (10 percent if correction is within two years of the error)
- A new start-up rule for 401(k) plans for the self-employed and single-employee LLCs
NAIFA’s Monday Morning Memo is a weekly update memo prepared for NAIFA’s Government Relations Leadership by Danea M. Kehoe, of Counsel to NAIFA. Comments contained in the Monday Morning Memo will be topical, timely, frank and - as they are intended solely for the members of the Government Relations Leadership – Confidential and Privileged. All Government Relations Leaders with questions or comments may e-mail firstname.lastname@example.org.
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