What Does the HEROES Act Mean for Your Retirement Plan?

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What Does the HEROES Act Mean for Your Retirement Plan?

On May 15, the U.S. House of Representatives passed “The HEROES Act,” the latest COVID-19 relief proposal. Here, CKS Summit Group breaks down the act along with the affect it could have on your retirement plan.

Less than two months since Congress passed the CARES Act in response to the Coronavirus pandemic, another massive economic relief bill made its way through the House.

The bill – called the Health and Economic Recovery Omnibus Emergency Solutions Act (the “HEROES Act” H.R. 6800) runs the $3 trillion gamut, from providing nearly $1 trillion to state and local governments to additional funding for Coronavirus testing, additional direct payments to families, extending unemployment benefits, and housing and food assistance. Also included among the retirement-based provisions in the act are clarifications to the retirement provisions enacted under the CARES Act, funding relief for single-employer pension plans, relief for troubled multiemployer pension plans and a multitude of other changes.

The main differences between CARES Act and HEROES Act

The Heroes Act would see Americans who qualify for a stimulus check receive $1,200 ($2,400 in the case of joint return) plus another $1,200 for every other dependent with a maximum of $3,600 and immigrants would retroactively receive the $1,200 payment they were denied under the CARES Act. 

There are no changes to the original act in that people who earn over $75,000 do not make the cut for the maximum amount and it reduces by 5% above the amount of the stimulus check. For example, as explained by Forbes, a person who makes $99,000 and has no children would not receive a stimulus check.

The HEROES Act adjusts the language of the bill to reduce the benefit designed for just that person to $0. Under the HEROES Act, joint filers with just one TIN would receive a $1,200 check from the CARES Act.

HEROES Act and Retirement Planning

The HEROES Act has numerous retirement-related provisions. However, many of these provisions provide funding support and relief to distressed pension plans. While these are important provisions for those specific retirement plans, they don’t have a broad impact on most Americans. Three provisions you need to know include:

1. Waiver of RMDs for 2020

Perhaps a more impactful provision in the HEROES Act is the one that waives required minimum distributions (RMDs) for 2019. However, this provision is rather confusing since the CARES Act already waived most RMDs from retirement accounts for 2020. Additionally, all 2019 RMDs would have been taken out of accounts by the end of 2019, or April 1, 2020, if it was the first year for certain individuals. So, how can something that’s already done be retroactively suspended and beneficial?

Waived 2019 RMDs would provide some relief if you forgot to take an RMD in 2019. Typically a 50% penalty tax is attached to missed RMDs. Since the HEROES Act would waive this RMD, you won’t owe it or the penalty tax that comes with it.

2. Relief for Multiemployer Pension Plans

The HEROES Act’s retirement provisions also includes relief for troubled multiemployer pension plans. The “Emergency Pension Plan Relief Act of 2020” (EPPRA) says “the economic catastrophe resulting from COVID-19 has exacerbated the multiemployer pension crisis and threatened the hard-earned pensions of even more workers and retirees. This threatens to bankrupt the Pension Benefit Guaranty Corporation (“PBGC”), impose damaging liabilities on thousands of businesses, and devastate communities across the country.

About 10 million Americans participate in multiemployer pension plans and about 1.3 million of them are in plans that are quickly running out of money.

EPPRA creates a special partition program that would expand PBGC’s existing authority, increase the number of eligible plans, and simplify the application process—allowing more troubled plans to obtain relief. “Just like the bipartisan Butch Lewis Act (H.R. 397), eligible plans would include: plans in critical and declining status, plans with significant underfunding with more retirees than active workers, plans that have suspended benefits, and certain plans that have already become insolvent,” the summary states.

Under the special partition program, a plan would receive enough financial assistance to keep it solvent and well-funded for thirty years—with no cuts to the earned benefits of participants and beneficiaries. Plans that previously cut benefits would have to restore them to the retirees who earned them.

3. Roll-Over Tax Benefits

This brings us back to point 1. For the most part, the 2019 tax year is done. RMDs would have been taken already, so how does the waiver of the past year’s rules help today? For an individual to benefit from the changes, they would have to pay back their distributions through a rollover and, likely, file an amended return for 2019 showing the rollover. Since taxes for 2019 are not due until July 15, 2020, if the bill passes in time and you engaged in a rollover before that date, you could include the rollover information in your tax filing. By repaying a 2019 distribution through a rollover, it would be treated as if this amount was never distributed, and therefore, not subject to taxes. This would allow some people to lower their taxable income and tax bill for 2019.

What About SS Beneficiaries?

While Social Security beneficiaries aren’t left out of the second round of checks, most retirees won’t benefit from the proposed increase to the second COVID-19 payment.

The only way some Social Security beneficiaries might be left in the cold is if the second round of stimulus funds is delivered in the form of a payroll tax cut. The good news: Payroll tax cuts aren’t a popular option and are very unlikely to make it into any compromise stimulus bill since they’d do nothing to help the millions left unemployed by the great lockdown. 

That means if more financial relief comes to Americans, Social Security beneficiaries can likely count on getting their hands on some of that additional COVID-19 money.

What’s Next?

Congress is likely to take action on another Coronavirus stimulus bill over the next few weeks. If you want to make sure Social Security beneficiaries are included, consider contacting your representatives and urging support for direct payments rather than a payroll tax cut. And be ready to use any money you receive wisely by saving it, investing it, or paying essential bills with it if a second payment does arrive in the coming weeks.

The retirement income experts at CKS Summit Group will continue to monitor any developments related to the proposed HEROES Act and provide you with updates accordingly. If you are concerned about your current retirement strategy, don’t hesitate to reach out to us by calling 586-286-5820, or online here today.

The full summary of the HEROES Act bill’s “Division D: Retirement Provisions” can be found on pages 22-26 of the 90-page summary of the Heroes Act.