Retirement Savings Reform – a focus for the Trump Administration and Congress
On August 31, 2018, President Trump issued an Executive Order directing the Department of Labor (DOL) and Treasury Department to take action to “promote retirement security for America’s workers” by, among other things, expanding access to Multiple Employer Plans (MEPs). Specifically, within 180 days of the issuance of the Executive Order, DOL must “consider…whether to issue a notice of proposed rulemaking, other guidance, or both, that would clarify when a group or association of employers or other appropriate business or organization could be an ‘employer.’” Within that same timeframe, the Treasury Department must “consider proposing amendments to regulations or other guidance… regarding the circumstances under which a MEP may satisfy the tax qualification requirements…including the consequences if one or more employers that sponsored or adopted the plan fails to take one or more actions necessary to meet those requirements.”
In response to that Executive Order, DOL on October 23, 2018, published a Notice of Proposed Rulemaking (NPRM) in the Federal Register that “would make it easier for small businesses to offer retirement savings plans to their workers through Association Retirement Plans, which would allow small businesses to band together to offer 401(k) plans to their employees.” Specifically, under title 29 of the Code of Federal Regulations, DOL’s NPRM seeks to clarify the circumstances under which an employer group or association or a professional employer organization (PEO) may sponsor a workplace retirement plan. In particular, the NPRM clarifies that employer groups or associations and PEOs can, when satisfying certain criteria, constitute “employers” within the meaning of section 3(5) of ERISA for purposes of establishing or maintaining an individual account “employee pension benefit plan” within the meaning of ERISA section 3(2). As part of the NPRM, DOL is requesting comments on whether it should address, by regulation or otherwise, whether there are other types of entities that should be treated as an “employer,” within the meaning of ERISA section 3(5), for purposes of sponsoring a MEP. Importantly, the NPRM would apply solely to defined contribution plans.
Under the NPRM, an employer generally would be required to execute a participation agreement or similar instrument that lays out the rights and obligations of the MEP sponsor and the participating employer before participating. However, these employers would not be viewed as sponsoring their own separate, individual plans under ERISA. Rather, the MEP, if meeting the conditions prescribed in the NPRM, would constitute a single employee benefit plan for purposes of title I of ERISA. Consequently, the MEP sponsor – and not the participating employers – would generally be responsible, as plan administrator, for compliance with the requirements of title I of ERISA, including reporting, disclosure, and fiduciary obligations.
Notably, DOL considered, but decided not to include two specific categories of MEPs that are “outside the scope” of the current NPRM “because they implicate different policy concerns”: (1) “Open MEPs” (i.e., multiple employer plans contemplated under proposed Senate legislation known as RESA (Retirement Enhancement Security Act) and the House counterpart tilted the Family Savings Act of 2018), which are plans that cover employees of employers with no relationship other than their joint participation in the MEP; and (2) “Corporate MEPS”, which are plans that cover employees of related employers which are not in the same controlled group or affiliated service group, within the meaning of section 414(b), (c), and (m) of the Code.
Interestingly, the NPRM also specifically notes:
The Department’s proposal differs in significant ways from several legislative proposals introduced in Congress. For one thing, the Department’s proposal is more limited because it relies solely on the Department’s authority to promulgate regulations administering title I of ERISA. Unlike the Department, Congress has authority to make statutory changes to ERISA and other areas of law that govern retirement savings, such as the Internal Revenue Code (Code). The Department does, however, have authority to interpret the statutes it administers, and it believes that a regulation clarifying the meaning of the statutory term “employer,” 29 U.S.C. 1003(a)(1), will ensure that statutory term is a clear legal standard for the use of MEPs under title I of ERISA.
As such, it does not appear that the NPRM – as currently drafted – is likely to have much of a substantive impact on ongoing legislative efforts surrounding Open MEPs. Comments on DOL’s NPRM are due by December 24, 2018. As for Treasury’s mandate under the Executive Order, the Department recently updated its unified regulatory agenda, which indicates that the Internal Revenue Service (IRS) intends to issue an NPRM on the “one bad apple rule” by April 2019.
One final note regarding the aforementioned legislative efforts: both the House and Senate – Republicans and Democrats alike – would like to get retirement savings reform done by year’s end. The Family Savings Act of 2018 – which is one of the three legs of “Tax Reform 2.0” that passed the House earlier this year – represents the House’s beginning negotiating position with the Senate on RESA, which is the retirement savings reform package passed unanimously out of the Senate Finance Committee last Congress. Notably, late last month, House Ways and Means Committee Chairman Kevin Brady (R-TX) released a package with various tax, retirement, and disaster-related provisions – including a provision related to open multiple employer plans (Open MEPs). Per the Committee:
Under the provision, multiple employer plans that meet specified requirements, including a requirement that the plan have a pooled plan provider, would be considered to be “pooled employer plans.” A pooled plan provider would be required to agree to be a fiduciary of the plan and to serve as the plan administrator, responsible for ensuring that the plan meets all applicable tax-law and ERISA requirements. In the event that one employer in a pooled provider plan violates one of the tax-law requirements, the other employers would not be affected by that failure. In addition, the ERISA requirements regarding the types of employers that may participate together in a multiple employer plan would be expanded for pooled provider plans to eliminate any requirement that the employers in the plan be related to each other in some fashion. The provision would be effective for plan years beginning after December 31, 2019.
Finally, note that whatever happens in the retirements savings space in the last few days of this Congress, with Democrats taking control of the House next year, expect for incoming House Ways and Means Committee Chairman Richard Neal (D-MA) to continue pursuing further reforms in the 116th Congress. Note, too, with incoming Chairman Chuck Grassley (R-IA) taking the reins of the Senate Finance Committee next Congress, it will be important to keep apprised of his priorities – priorities which could well include retirement savings reform.