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Negotiations continue in Congress for a second stimulus plan to help the country grapple with COVID-19 economic fallout. The key proposals offer widely varying degrees of aid for retirement plans and people who depend on them for income.
The Republican leadership in the Senate has christened their second stimulus proposal the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act. It offers little in the way of assistance for retirement savers.
Democratic leaders pitched their own second stimulus package in May, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act. There is more relief from the Democrats, but not much more.
As of writing, the Republican leadership and the Democrats remain far apart in negotiations, although both sides have indicated that they want to pass a measure before Congress begins a month-long break on Aug. 7.
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Republican HEALS Act Offers Little Help for Retirement Plans
Senate Majority Leader Mitch McConnell rolled out the HEALS Act on July 27. It includes several separate pieces of legislation that address new stimulus checks, more money for the Paycheck Protection Program (PPP), and extended but diminished unemployment benefits. It offers minimal assistance for retirement plans or retirement savers.
HEALS would extend COVID-19 penalty-free early withdrawals to participants in money purchase plans, which are a form of employer-sponsored pension plan. According to Bureau of Labor Statistics data, approximately 16% of private industry workers were covered by a money purchase plan in 2019.
The CARES Act permitted additional penalty-free withdrawals from defined contribution plans like 401(k)s and individual retirement accounts (IRAs) in 2020—just not money purchase plans—for participants impacted by coronavirus, including people who:
- Were diagnosed with COVID-19.
- Had a spouse or dependent diagnosed with COVID-19.
- Experienced a layoff, furlough, reduction in hours, or inability to work due to COVID-19 or lack of childcare because of COVID-19.
- Had a job offer rescinded or a job start date delayed due to COVID-19.
- Experienced adverse financial consequences due to an individual or the individual’s spouse’s finances being affected due to COVID-19.
- Had working hours reduced or eliminated at a business owned or operated by the individual or their spouse due to COVID-19.
The Republican plan would also clarify the due date for certain single-employer pension plan minimum required contributions, which were delayed by the CARES Act, and clear up details surrounding employee eligibility for higher retirement plan loans.
HEALS Would Freeze Medicare Part B Premiums
While not directly related to retirement savings plans, a provision in the GOP bill would help seniors by freezing 2021 Medicare Part B premiums for outpatient coverage at 2020 levels, instead of adjusting them upward. The 2021 Part B monthly premium would remain at $144.90.
The proposal would help protect Medicare beneficiaries from a potential spike in premiums for outpatient coverage, which is anticipated due to less money flowing into the program during the coronavirus recession.
HEROES Would Bolster Multiemployer Pension Plans and Suspend 2019 RMDs
The Democrats’ HEROES Act proposes additional relief from required minimum distributions (RMDs), plus funding relief for certain types of pension plans that have been under pressure from the recession.
HEROES would retroactively suspend RMDs from tax-deferred retirement accounts for 2019. With many account balances still recovering from the market slide earlier this year, the measure would provide more flexibility for retirees to return funds to retirement plans and benefit from the continuing recovery. The CARES Act has already suspended RMDs for 2020.
Savers would be eligible to roll RMD amounts taken in 2019 back into their accounts if the rollover is done by Nov. 30, 2020.
Nearly 10 million Americans are covered by multiemployer pension plans, while 1.3 million of them are in plans that are quickly running out of money. HEROES would extend relief to underfunded multiemployer pension plans, those that currently have more retirees than active workers, and certain plans that have already become insolvent.
HEROES Also Offers Medicare Proposals
The Democrats have Medicare proposals of their own, including no out-of-pocket costs for COVID-19 treatment under Medicare Parts A and B. HEROS would also implement a special enrollment period so that people can sign up for Parts A and B without waiting.
The usual Medicare open enrollment period begins on Jan. 1 each year, for people who didn’t sign up when they were eligible, around age 65.
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