As Congress considers a package of retirement savings measures, failure to act promptly on one provision granting testing relief to plan sponsors of closed defined benefit plans could cause an estimated 200,000 plan participants in Aon's client base to lose future benefits, according to a new analysis performed by Aon for the American Benefits Council.
Under current law, outdated IRS regulations force some employers with closed pension plans to freeze them completely, to avoid running afoul of non-discrimination testing rules that become harder each year to pass, as participants in closed plans get older and more highly compensated. As a result of failing the test, plan participants stop accruing benefits. Some employers might need to freeze their plans by 2019, without the relief.
The proposed Retirement Enhancement and Savings Act of 2018 introduced March 8 in the Senate eases those non-discrimination testing rules and rules for make-whole contributions to defined contribution plans, with certain conditions.
The bipartisan package introduced by Senate Finance Committee Chairman Orrin Hatch, R-Utah, and ranking member Ron Wyden, D-Ore., which mirrors a proposal introduced in the last Congress and approved by the Finance Committee, was expected to win Senate approval as early as Wednesday, and a House version could be introduced shortly.
"This is one of many critical provisions in RESA that would help strengthen retirement security," said Kent A. Mason, a partner at Davis & Harman who is outside counsel to the American Benefits Council.