Tax Reform 2.0 adds to momentum for open MEPs

New bill eases rules around open multiple-employer plans by allowing more employers to band together to offer a common retirement plan

Sep 11, 2018 @ 2:23 pm

By Greg Iacurci

The House of Representatives is building on recent momentum to enact a popular retirement-security measure seeking to make it easier for small businesses to offer workplace savings plans.

Rep. Kevin Brady, R-Texas, chairman of the House Ways and Means Committee, introduced a trio of bills Monday known as Tax Reform 2.0, which partly aims to make permanent rate reductions for individuals and small businesses codified in last year's tax-reform law.

The Family Savings Act of 2018, one of the three bills, eases rules around open multiple-employer plans, or open MEPs. These rules would allow more employers to band together and offer a common retirement plan to employees, thereby reducing cost and administrative duties.

President Donald J. Trump signed an executive order Aug. 31 directing the Labor and Treasury Departments to consider updating rules around open MEPs.

A bipartisan piece of existing legislation, the Retirement Enhancement and Savings Act, also contains measures around open MEPs with language nearly identical to that in the Family Savings Act, experts said. RESA unanimously passed the Senate Finance Committee in 2016, and has been reintroduced in both congressional chambers.

"The idea of an open MEP has long been this bipartisan thing, but there hasn't really been any fire lit under the movement," said Jake Spiegel, senior research analyst at Morningstar Inc. "I think Trump's executive order helped accomplish that. At the very least, it keeps it fresh in everyone's mind."

The Family Savings Act contains several measures that were also part of the RESA legislation, including one that would make it easier to roll a 401(k) annuity to an individual retirement account in certain circumstances.

The new bill also would provide an exception from taking required minimum distributions for people with less than $50,000 held in retirement accounts, repeal the maximum age to contribute to a traditional IRA (currently 70½), provide penalty-free 401(k) withdrawals for childbirth or adoption, and establish universal savings accounts — a Roth-like account with a contribution limit of $2,500 that investors can draw from outside of retirement.

At the same time, the Family Savings Act omits a few provisions sought by some industry stakeholders, including the Insured Retirement Institute and the American Council of Life Insurers. Both groups issued statements lamenting the lack of provisions that would encourage employers to add annuities to 401(k) plans and require illustrations of how 401(k) balances translate into lifetime-income streams — both of which were included in RESA.

Michael Hadley, partner at Davis & Harman, said he's "cautiously optimistic" about a retirement bill being signed into law by year-end. If that happens, it would likely be a combination of items from RESA and the Family Savings Act, he said.

"We're closer to a retirement bill than we've been in some time," Mr. Hadley said. "The last real bill that had a chance to become law? I can't think of anything since the Pension Protection Act of 2006. It is high time for a comprehensive retirement bill."

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