DOL proposes rule to broaden retirement plan coverage

But the proposal doesn't create "open MEPs," as many in the industry had been hoping

Oct 22, 2018 @ 2:14 pm

By Greg Iacurci

The Department of Labor has proposed a rule aimed at boosting the number of small employers that offer retirement plans to their workers, an issue that has dominated national discussions on retirement policy and prompted President Donald J. Trump to issue an executive order around retirement security nearly two months ago.

The Labor Department's proposal seeks to expand retirement-plan coverage by broadening the circumstances under which employer groups, associations and professional employer organizations can sponsor multiple employer plans.

Such defined-contribution plans, often referred to as MEPs, allow several employers to share a common retirement plan, helping to drive down plan costs and reduce administrative and fiduciary liability, according to experts.

Currently, employers need some sort of common ownership or relationship — belonging to a trade association like the American Bar Association, for example — to join a MEP, said David Levine, principal at Groom Law Group.

The proposal loosens the business affiliation requirements, allowing employers that are in the same trade, industry, line of business or profession to join a MEP. Employers that don't have a common business line but have a principal place of business within the same state or metropolitan area can also join the same MEP.

"All of those things are huge expansions of where we are today," Mr. Levine said.

The Labor Department's proposal is primarily aimed at small employers. Only 45% of employers with fewer than 50 employees offer a workplace retirement plan, compared with 94% of companies with more than 500 employees, according to U.S. Bureau of Labor Statistics data cited by the DOL.

Several states have tried addressing the coverage issue in recent years through mechanisms such as automatic-enrollment, payroll-deduction IRA programs or auto-IRAs.

The DOL proposal follows on the heels of Mr. Trump's Aug. 31 executive order directing the DOL to issue regulations and guidance to make it easier for businesses to offer retirement plans.

However, some believe the proposal falls short because it doesn't create truly "open" MEPs allowing several different stakeholders to sponsor such retirement plans.

For example, the proposal explicitly prohibits financial services firms — such as broker-dealers, record keepers, third-party administrators, banks, trust companies and insurers, as well as their related entities — from sponsoring a MEP.

Terrance Power, president and CEO of The Platinum 401k Inc., a third-party administrator, said he's "thrilled" the DOL issued rules around MEPs but noted that the agency's "hands were tied" by current law in terms of the scope of its rule.

"It's not going as far as it could go," he said of the DOL. "It'll require a legislative solution. We remain optimistic that'll happen by the end of the year."

In September, the House of Representatives passed the Family Savings Act, which contains a provision to create open MEPs. The Senate has yet to pass the Retirement Enhancement and Savings Act, a bipartisan bill that contains a similar provision.

"When you look at [the DOL proposal], it's more open," Mr. Levine said.

"But it's not a truly open MEP. That's RESA," he added, referring to the Senate legislation.

Aaron Pottichen, a retirement plan adviser, thinks the DOL's proposal is better for employers and participants than allowing record keepers, RIAs, broker-dealers and other financial firms to sponsor MEPs. The latter scenario could make it more difficult for employers to unwind from a particular provider if they didn't like its service, he said.

"It keeps power and control in the hands of associations and employers," said Mr. Pottichen, senior vice president of retirement services at Alliant Retirement Consulting, who currently advises a nonprofit association on its MEP.

The Labor Department's proposal, "Definition of "Employer" under Section 3(5) of ERISA – Association Retirement Plans and Other Multiple-Employer Plans," will be published officially in the Federal Register on Tuesday. There will be a 60-day public comment period. The DOL will weigh public input when drafting a final rule.

0
Comments

What do you think?

View comments

Upcoming event

Oct 22

Conference

San Francisco Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Most watched

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

INTV

Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

Latest news & opinion

GPB paid B-Ds and reps steep commissions to sell troubled private placements

GPB paid commissions of 9.3%, or $167 million altogether, on the firm's private placements.

Give us a break, active managers say

Seven portfolio managers share their outlooks for the rest of the year, generally agreeing that it's been hard for active managers to stand out.

GPB Capital reports decline in value of two biggest funds

One has dropped by 25.4% and the other by 39%, according to the company.

6 ways Social Security will change in 2020

As the enormous baby boomer generation continues to march toward retirement, they are straining the resources of Social Security. Here are six ways that the nation’s primary retirement income program will change in 2020.

SEC clears up confusion over whether advisers can continue to call themselves fiduciaries

Despite an agency directive to eliminate the word 'fiduciary' in Form CRS, SEC officials say it's OK to use it.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print