Senate Retirement Bill Could Include LTCI Premium Provision

The Senate Finance Committee is considering a proposal that would allow people to use retirement plan account assets to pay long-term care insurance premiums.

The committee included a summary of the proposed LTCI premium payment amendment in a master amendments document for the Enhancing American Retirement Now Act bill, or EARN Act bill.

The committee is planning to hold a hearing on the EARN Act bill at 10 a.m. June 22. The committee intends to stream the hearing online and post a video recording of the hearing on its website.

What It Means

Members of Congress are still considering ways to encourage people to buy private LTCI coverage.

Even if the retirement plan LTCI premium amendment fails to pass this year, its existence is proof that the idea is still out there.

IRI’s View

The Insured Retirement Institute (IRI), an annuity industry trade group, is tracking the EARN Act bill and amendment proposals.

IRI said in an email alert that the Senate Finance Committee hearing — combined with the recent Senate Health, Education, Labor and Pensions Committee approval of the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act, or Rise & Shine Act — “demonstrates powerful momentum behind putting a comprehensive retirement security measure on President Biden’s desk this year.”

The Background

One of the obstacles facing issuers of private LTCI coverage has been that solid LTCI coverage has typically cost about $100 to $250 per month.

Because most people who file LTCI claims are using their benefits after they have reached 65, some long-term care policy specialists have been suggesting for years that the government should let workers invest retirement plan assets in LTCI coverage.

The Amendment

Sen. Patrick Toomey, R-Pa., who proposed the new retirement plan LTCI premium payment amendment, is also the sponsor of S. 2415, the Long-Term Care Affordability Act.

Like the new amendment, S. 2415 would let workers use the assets in 401(k) plans and other defined contribution retirement plans to pay LTCI premiums.

S. 2415 also includes a section that would require workers to get a notice explaining how the U.S. long-term care financing system works and telling them about the existence of private LTCI coverage.

This is the text of the Senate Finance Committee summary of the new amendment:

Short Title: To allow individuals to withdrawal funds from their retirement accounts to pay for long-term care insurance and to exclude such withdrawals from gross income, up to $2,500 annually.

Description of Amendment: This amendment would exclude from gross income any distribution from an eligible retirement plan to the extent that the aggregate amount of such distributions does not exceed the amount paid by or assessed to the individual during the taxable year for a long-term care insurance contract. Such exclusion is permitted only for one taxpayer for any taxable year with respect to any one insured individual, and the amount excluded from income with respect to an insured individual may not exceed $2,500 (adjusted for inflation). The term “eligible retirement plan” includes a qualified retirement plan that is a defined contribution plan, a section 403(a) annuity plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA. The qualifying coverage may be for the individual or the individual’s spouse or dependent.

At press time, it was not clear whether the proposed amendment would also include the S. 2415 explanatory notice requirement.

Pictured: Sen. Pat Toomey, R-Pa. (Photo: Toomey)