A policy mechanism that's somewhat of an industry darling when it comes to the notion of boosting retirement-plan coverage is now within reach, following the Senate Finance Committee's unanimous approval of retirement legislation on Wednesday.
Due to overwhelming bipartisan support for the Retirement Enhancement and Savings Act, and the likelihood it will be attached to a year-end spending bill, there's a strong chance open multiple employer plans, known as open MEPs, will become reality by year-end, industry-watchers said.
“I think all of the provisions in the Senate marked-up bill represent bipartisan consensus, common-sense ideas, and would have a good shot at becoming part of a broader package of tax and other provisions that might be passed by the end of the year,” said Michael Hadley, partner at Davis & Harman.
Retirement security has been a major political focus for industry lobbyists and politicians of late. Most prominently, a handful of states such as Connecticut, Maryland, Illinois, Oregon and most recently California have passed legislation to create mandatory automatic-enrollment, payroll-deduction IRA programs for small businesses. Several other states are weighing similar action.
STATE STREET, PRUDENTIAL
Many in the retirement industry, however, have viewed open MEPs more rosily than the state-based approach, mainly due to their voluntary rather than mandatory nature at the employer level, and the fact that MEPs still adhere to ERISA whereas state plans don't.
John Kalamarides, head of institutional investment solutions at Prudential Retirement, testified before the Senate Finance Committee in January that open MEPs are “a 'win' for both employees and employers.”
And the Investment Company Institute, an opponent of the state-based auto-IRA approach to boost coverage, is an advocate for open MEPs.
“I think this would be the primary way to increase coverage at this point and still keep within the voluntary retirement system,” said Will Hansen, senior vice president of retirement policy at the ERISA Industry Committee, a nonprofit association for large plan sponsors.
Multiple employer plans are a type of defined-contribution plan allowing a group of employers, typically small businesses, to offer a common savings plan to employees.
The pooling of assets allows for cost efficiencies perhaps not otherwise achievable for small 401(k) plans, and allows employers to outsource the fiduciary responsibility that comes with offering an employer-sponsored plan to a single entity overseeing the common plan.
Both primarily benefit small employers, which are the least likely to offer a workplace savings plan and therefore represent the area where improvements could perhaps go a long way to improving coverage.
“It gives the flexibility of participating without some of the administrative burden,” said Jamie Greenleaf, principal and lead adviser at Cafaro Greenleaf.
However, current MEP rules have limitations deterring widespread use.
For one, a “nexus,” or commonality, needs to exist between employers in order to take part in the same MEP (think local law firms or medical offices, for example). The biggest deterrent, though, is probably the “one bad apple rule,” which essentially says all the employers participating in the MEP are held liable for the screw-up of one employer, and risk the entire plan losing its tax-qualified status.
The new bill, though, would create “open” MEPs by removing the “nexus” requirements, paving the way for a local Chamber of Commerce to sponsor a plan for all small businesses, for example.
The bill also allows any employer jeopardizing the plan's tax-qualified status to be separated out from the pack to avoid punishing the entire plan. The open MEPs would be called “pooled employer plans,” or PEPs.
The fact that the Senate Finance Committee “came together in a bipartisan fashion” to push through the Retirement Enhancement and Savings Act, which contains several retirement-related provisions in addition to open MEPs, means “a lot of it will likely cross the finish line,” said Mr. Hansen, formerly legislative counsel for Senator Robert Casey, Jr. (D-PA), who sits on the Finance Committee.
The Finance Committee also pushed through the Miner's Protection Act of 2016 on Wednesday, which is politically significant because Democrats were refraining from moving on other retirement legislation until there was action on the coal miner bill, which addresses health and pension issues, both Mr. Hansen and Mr. Hadley said.
The retirement bill, and the open MEP provision, aren't “set in stone” and may be altered before final passage, Mr. Hansen said. However, given open MEPs “don't have a lot of opponents to them anymore” and Congress will want to show it's pushing forward on retirement security, the provision along with the coal miner bill will likely be attached to a year-end spending package, according to Mr. Hansen.