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On Aug. 31, President Donald Trump signed an executive order directing the Departments of Labor and Treasury to consider changes that would make it easier for businesses to join together to participate in multiple employer plans (MEPs).
MEPs allow groups of small employers to pool workers into one 401(k) plan, helping them to achieve economies of scale on investment, record keeping and administration costs. They also relieve employers of reporting requirements to the Department of Labor (DOL) and allow MEP providers to share employers’ fiduciary requirements under the Employee Retirement Income Security Act of 1974 (ERISA).
The guidance from the DOL and the Treasury Department (the Treasury) would likely eliminate the current requirement that employers share commonality, or nexus (such as membership in a trade group), to gain the benefits of MEPs. It would also eliminate the so-called “one bad apple” rule, which subjects MEPs to disqualification if a single participating employer fails to meet administrative requirements.
The executive order also:
- Directs the Treasury to review the rules on required minimum distributions (RMDs) from retirement plans (to see if retirees could keep more money in 401[k]s and individual retirement accounts for longer periods of time). The Treasury is instructed to examine the life expectancy and distribution period tables in RMD regulations, which could result in smaller RMDs after age 70½ (helping to preserve assets in retirement).
- Directs the Treasury and the DOL to consider ways to improve notice requirements to reduce paperwork and administrative burdens. The review specifically requires “an exploration of the potential for broader use of electronic delivery as a way to improve the effectiveness of disclosures and to reduce their associated costs and burdens.”
Preliminary reaction to the executive order is favorable in the retirement industry. The idea of relaxing access requirements to MEPs already has support in Congress. MEPs are a key provision in the bipartisan Retirement Enhancement and Savings Act of 2018 (RESA), a broad-based retirement security bill, and RESA’s MEP provision may find its way into an upcoming tax reform package on Capitol Hill. The RMD provision is somewhat surprising, in the sense that the government may temporarily forego tax revenue if the period for taking RMDs is extended, but retirees may appreciate the ability to defer distributions for longer time frames. The retirement industry has long promoted the concept of advancing electronic disclosures in the name of streamlining administrative requirements and cutting costs for plan sponsors and participants.
This latest action by the executive branch is intended to expand access to retirement plans (especially among smaller employers), rework “outdated distribution mandates” which force retirees to make “excessively large withdrawals from their accounts (potentially leaving them with insufficient savings in their later years),” and ease regulatory burdens by reducing the number and complexity of employee benefit plan notices.
We’ll keep you posted on how these directions are carried out.
The White House, “Executive order on strengthening retirement security in America,” Aug. 31, 2018
The White House, “President Donald J. Trump is strengthening retirement security for American workers,” (Fact sheet), Aug. 31, 2018
BenefitsPRO, “Trump’s executive order instructs Labor to set table for open MEPs,” Nick Thornton, Aug. 31, 2018
NAPA Net, “ARPs, RMDs and e-delivery — oh, my!”, Nevin E. Adams, JD, Aug. 31, 2018
Blog header image: Diego Grandi/Shutterstock.com
Senior Analyst Retirement Research, Invesco Consulting
Senior Analyst Jon Vogler draws on extensive pension expertise to offer retirement thought leadership for Invesco. In addition to writing Invesco’s Retirement blog, he tracks legislative and regulatory developments and contributes as a writer and editor to a variety of retirement-related Invesco communications.
Prior to joining Invesco in 2008, Mr. Vogler spent more than 25 years in the research, writing, compliance and underwriting areas of the retirement services industry, including roles as a senior consultant at Mutual Benefit Life’s pension consulting firm and as a compliance manager in the Automatic Data Processing retirement services division.
Mr. Vogler earned the Fellow, Life Management Institute (FLMI) and Competent Toastmaster (CTM) designations. He earned a BA degree in history from Rutgers, The State University of New Jersey.