Spending Bill: Big Changes for Retirement System

Summary

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WSJ Your Money Briefing

Episode: Spending Bill: Big Changes for Retirement System
Date: December 20, 2019
Host: J.R. Whalen
Guest: Ann Tergeson, Wall Street Journal Retirement Reporter

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Episode Overview

This episode focuses on the major retirement-related changes included in the newly approved Congressional spending bill—described as the most sweeping updates to the U.S. retirement system in more than a decade. J.R. Whalen speaks with Wall Street Journal reporter Ann Tergeson, who breaks down how these changes affect older workers, part-time workers, small businesses, and the broader challenge of retirement security for Americans.

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Key Discussion Points

1. Raising Age Limits for IRA Contributions and Distributions

• Repeal of IRA Contribution Age Cap:
  Previously, individuals over age 70½ could not make contributions to traditional IRAs. The new law eliminates this age restriction, enabling older, working adults to continue contributing.
  • Quote (Ann Tergeson):
    “If you want to contribute to an IRA, there is no longer an age cap. But in order to contribute to an IRA, you have to have wage income, so you need to be working.” (02:32)
• RMD Age Increase:
  The age for required minimum distributions (RMDs) from IRAs and 401(k)s rises from 70½ to 72.
  • Quote (Ann Tergeson):
    “Under the new law, it’s going to be raised to age 72... enabling them to maintain the money in that account for longer.” (02:50)

2. 401(k) Annuities and Safe Harbor

• Expanded Annuity Options:
  Few 401(k) plans currently offer annuities due to employer liability concerns. The new law provides a legal “safe harbor” to employers who follow proper procedures when selecting insurers, reducing the risk of being held liable if an insurer fails.
  • Quote (Ann Tergeson):
    “For employers who follow certain procedures when selecting an insurance company to provide an annuity, the law will provide some protections against legal liability...” (03:21)
• Fees and Guarantees:
  Ann points out that annuities generally have higher fees than mutual funds, reflecting their income guarantees.
  • Quote (Ann Tergeson):
    “Annuities tend to have higher fees than just a plain mutual fund does, in part because they offer... a guarantee that they will pay income for maybe your lifetime or a set number of years. So you pay for that guarantee.” (04:08)

3. Inclusion of Part-Time Workers in 401(k) Plans

• Lower Threshold for Participation:
  Previously, part-time employees needed to log at least 1,000 hours per year to be eligible for their employer’s 401(k) plan. The new rule entitles employees who work at least 500 hours per year for three consecutive years to join.
  • Quote (Ann Tergeson):
    “If you have worked at least 500 hours per year for three consecutive years, then you must be entitled to join the 401 plan.” (04:33)

4. Making 401(k) Plans Easier for Small Businesses

• Encouraging Multi-Employer Plans:
  At least 30% of private sector workers lack retirement plan access, often because their employers, especially small businesses, don’t offer them. The bill encourages small businesses to pool resources through joint plans, reducing administrative burden and cost.
  • Quote (Ann Tergeson):
    “This bill seeks to encourage companies to sort of join together to offer plans... they could outsource the kind of setup of the plan and the ongoing running to some kind of central administrator and a bunch of companies could just join together...” (05:10)
• Goal:
  To address the “coverage gap”—people left behind without retirement plans and at risk of outliving their savings.
  • Quote (Ann Tergeson):
    “This law is one way that again, this would be voluntary. It would not compel companies... But in theory, it would encourage more to do so.” (06:15)

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Notable Quotes & Memorable Moments

• On Extending Retirement Account Use:
  • “Requiring them to drain their retirement account starting at a later age, in theory enables them to maintain the money in that account for longer.” – Ann Tergeson (02:57)
• On Employer Annuitization Concerns:
  • “Employers are just worried that they’re going to be legally liable if they choose an insurance company to offer an annuity and then that insurance company later has financial difficulties and can’t pay as promised.” – Ann Tergeson (03:21)
• On Addressing Gaps in Coverage:
  • “Lawmakers on both the state and federal level are looking at different ways... encouraging companies that don’t currently offer 401 or type retirement plans to offer one.” – Ann Tergeson (05:10)

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Timestamps for Key Segments

• 00:27 – Episode introduction and student loan policy updates (brief, background)
• 01:45 – Introduction to retirement bill discussion
• 02:08 – Removal of IRA contribution age cap and RMD age increase
• 03:16 – Annuities in 401(k) plans and employer legal safe harbor
• 04:08 – Fees associated with 401(k) annuities
• 04:28 – Expansion of 401(k) eligibility for part-time workers
• 05:01 – Policies to help small businesses offer 401(k)s, and multi-employer plan incentives
• 06:15 – Discussion of the population coverage gap and voluntary nature of reforms

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Summary

The episode delivers a clear, concise examination of recent landmark retirement reforms—with a focus on making it easier for Americans to save, especially as they work later in life, work part-time, or are employed by small businesses. The conversation remains practical, with Ann Tergeson providing factual explanations and directly addressing how these legislative changes will touch everyday savers, employers, and the broader goal of retirement security.

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Transcript

[Small Business Owner 1]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Small Business Owner 2]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner 1]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Small Business Owner 2]

they need while increasing megastore profits. They deserve it, don't they?

[Small Business Owner 1]

Tell Congress stop the Durbin Marshall money

[J.R. Whalen]

grab for corporate megastores paid for by the Electronic Payments Coalition. Here's your money briefing for Friday, December 20th. I'm J.R. whelan at the Wall Street Journal in New York. The spending bill approved by Congress this week includes the most sweeping changes to the nation's retirement system in more than a decade. Wall Street Journal reporter Ann Tergeson has read the bill and she'll be here to explain the changes. First, some money and market news you should know. The Trump administration is floating ideas to help 42 million Americans with their one and a half trillion dollars in student loan debt. One would be allowing borrowers to refinance loans at lower rates. Another proposal would make it easier for borrowers in bankruptcy to eliminate debt on student loans. The administration's plan doesn't include large scale student loan forgiveness, which has been proposed by several Democratic presidential candidates. The White House and the Department of Education feel that a program to cancel a large portion of student debt would be unfair to taxpayers and unpopular among Republican voters. Some part time workers and small businesses have been Left out of 401k retirement plans until now. The spending bill passed by Congress, which is expected to be signed by President Trump, calls for the most significant changes to the nation's retirement system and more than a decade. And Wall Street Journal reporter Ann Tergeson is here with the details. So Ann, one of the most prominent changes to the laws governing retirement reflect the fact that more people are putting off retirement. Many are working into their 70s.

[Ann Tergeson]

One of the purposes here was to enable people to invest more if they continue to work. So you know, currently under current law, if you're 70 and a half or older, you cannot, you can no longer contribute to a traditional ira. And under the law that changes repealing that age cap on contributions so the

[J.R. Whalen]

age cap goes to 72.

[Ann Tergeson]

No, if you want to contribute to an IRA, there is no longer an age cap. But in order to contribute to an ira, you have to have wage income, so you need to be working. What you're referring to is the age for taking required minimum distributions. If you have a 401 or an IRA, a tax deferred account. Under the law, the government requires you to start taking money out of those accounts at a certain point in time. Currently that age is 70 and a half. Under the new law, it's going to be raised to age 72 again in recognition of the fact that people are living longer. And so requiring them to drain their retirement account starting at a later age, in theory enables them to maintain the money in that account for longer.

[J.R. Whalen]

And also under the law, 401 plans could soon offer products with guaranteed income payments.

[Ann Tergeson]

Currently, 401 plans can offer annuities is basically what the issue is here. But very, very few of them do, in part because employers are just worried that they're going to be legally liable if they choose an insurance company to offer an annuity and then that insurance company later has financial difficulties and can't pay as promised. So under this new law, it gives sort of a safe, what's called a safe harbor. So for employers who follow certain procedures when selecting an insurance company to provide an annuity, the law will provide some protections against legal liability if that insurer ultimately doesn't pay on what it's supposed to.

[J.R. Whalen]

There are also some fees involved when annuities are in 401k plans, right?

[Ann Tergeson]

So there's fees involved with everything. With mutual funds and different types of investments in 401 plans, annuities tend to have higher fees than just a plain mutual fund does, in part because they offer, in many cases, they offer some kind of guarantee that they will pay income for maybe your lifetime or a set number of years. So you pay for that guarantee.

[J.R. Whalen]

And there's good news in the law for part time employees. The law will allow them to join 401 plans, right?

[Ann Tergeson]

All right. So currently people can join a 401 if they work part time, but they have to be working at least 1,000 hours a year. Of course, the employer can set that limit at a lower threshold if they want to, but the thousand hours is in the law. This new law says that if you have worked at least 500 hours per year for three consecutive years, then you must be entitled to join the 401 plan.

[J.R. Whalen]

And then for small businesses, Congress wants it to be easier for them to offer 401 plans, but really spread the burden around, right?

[Ann Tergeson]

So currently an estimated at least 30% of the population private sector workforce does not have access to a 401 plan at work. Their employer just doesn't offer it. So lawmakers on both the state and federal level are looking at different ways of encouraging companies that don't currently offer 401 or type retirement plans to offer one. And this bill seeks to encourage companies to sort of join together to offer plans because often small businesses in particular don't offer plans because it's costly and it takes up a lot of the time of the person who's running the company who really needs to focus on other things. So this way they could outsource the kind of setup of the plan and the ongoing running of the plan to some kind of central administrator and a bunch of companies could just join together in a and it's a good way

[J.R. Whalen]

for more people to generate retirement plans. And, you know, this has been on the government's worry list for a long time, the idea that a large portion of the population runs the risk of outliving their money.

[Ann Tergeson]

So there are different ways that the state and federal government are looking at sort of addressing this issue of coverage gap. And this law is one way that again, this would be voluntary. It would not compel companies or small companies to, you know, to offer a plan. But in theory, it would encourage more to do so.

[J.R. Whalen]

All right, that's Wall retirement reporter Ann Tergeson here in our studio. Anne, thanks for coming on the show.

[Ann Tergeson]

You're welcome.

[J.R. Whalen]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[Small Business Owner 1]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Small Business Owner 2]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner 1]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Small Business Owner 2]

they need while increasing megastore. Prof. They deserve it, don't they?

[Ann Tergeson]

Tell Congress, stop the Durbin Marshall money

[J.R. Whalen]

grab for corporate megastores paid for by the Electronic Payments Coalition.