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House Ways and Means passes tax reform 2.0, with uncertain prospects

Rep. Richard E. Neal, D-Mass.
House Ways and Means ranking committee member Richard E. Neal, D-Mass., said the House approach is ‘a drop in the ocean.’

A "tax reform 2.0" package of three bills, including one aimed at increasing workplace retirement savings, was approved by the House Ways and Means Committee on Thursday along party lines.

The retirement bill, the Family Savings Act of 2018, H.R. 6757, drew guarded support from retirement advocates, who see more to like in a Senate legislative proposal, the Retirement Enhancement and Savings Act of 2018. RESA, which enjoys bipartisan support in the Senate, would make it easier for smaller employers to join open multiple employer plans, ease non-discrimination testing rules for plan sponsors, lift a 10% safe harbor cap on default contributions for automatic enrollment and escalation in defined contribution plans, and reduce the Pension Benefit Guaranty Corp. premiums paid by cooperatives and small charities that sponsor plans.

Unlike RESA, the House proposal doesn't include a safe harbor for plan sponsors to select a retirement plan annuity, and while it does call for an independent study of PBGC single-employer premiums, the premium relief for cooperatives and small-employer charities was removed.

Ranking committee member Richard E. Neal, D-Mass., said the House approach is "a drop in the ocean and is missing key bipartisan provisions that will greatly improve our retirement system."

In a letter to the committee before the vote, American Benefits Council President James Klein said that while many of the House provisions are welcome, some like the PBGC premium study idea is troubling.

The proposed study "does not even inquire into whether premiums are too high, which they clearly are, but rather asks if they should be even higher. And the study raises issues that have been rejected sharply by Congress on numerous occasions," Mr. Klein said. He also expressed disappointment that several non-controversial bipartisan bicameral provisions, including the premium downsizing for charities or cooperatives, were missing from the House package.

A second bill in the package would make permanent some temporary tax cuts from the first round of tax reform, including ones for deductions of pass-through companies and individual tax rates, and extend small business startup credits. A third bill, the American Innovation Act, would let new businesses write off more of their initial startup costs and bring in new investors without triggering limits on the research and development credit and other tax benefits.

Mr. Neal echoed many observers' skepticism of further action on the package, calling the markup "a purely political exercise."

Prospects for the three-bill package to gain final approval are considered slim. "There is not a great groundswell of hope in the asset management community that this bill will progress. And if it does, it's not going to go anywhere in the Senate," said Rosemary Fanelli, a managing director and chief regulatory affairs strategist at global financial services consulting firm Duff & Phelps. Asset managers do appreciate the increased startup tax credits that came from tax reform 1.0, she said.

"That could be helpful to private equity and venture capital. We are seeing very robust M&A activity in the private equity and venture space," Ms. Fanelli said. "There has been a real increase in the value" since the first round of tax reform.