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Trump calls for path to open multiple employer plans, mandatory retirement distribution changes

President Trump’s executive order intends to make it easier for small businesses to band together to set up retirement-savings plans.

President Donald Trump issued an executive order Friday directing the Labor and Treasury departments to rework regulations so that more small employers can participate in open multiple employer plans.

The executive order, announced Friday afternoon in North Carolina, also directs officials to revisit rules on mandatory retirement account distributions at age 70 1/2.

"Basically, we will be trying to find policy ideas that will help make joining a 401(k) plan a more attractive proposition for small employers, to the ultimate benefit to their employees," said James Sherk, White House domestic policy special assistant, on a White House press briefing call.

Mr. Sherk said the timeline would range from 180 days for proposing regulations "to as long as a year for making sure that we get the paperwork side of this right."

Preston Rutledge, assistant secretary of labor for the Employee Benefits Security Administration, said on the press call that the extent and details of the changes will have to be worked out. "That's exactly what the whole regulatory process will be about, and why we would go through the administrative procedure process and seek public comment."

Potential changes to existing regulations on multiple employer plans include loosening criteria for how much commonality employers in a multiple employer plan must have, and amending the "one bad apple" rule so that one employer's mistake does not disqualify the entire MEP.

Making it easier for unrelated employers to join open MEPs is also the focus of several legislative proposals, including the bipartisan Retirement Enhancement and Savings Act of 2018 co-sponsored by Senate Finance Committee Chairman Orrin Hatch, R-Utah, and ranking member Ron Wyden, D-Ore. It is also being considered in the House as part of a broader tax reform 2.0 effort.

Mr. Rutledge said the White House action "is not meant to be exclusive of legislative action ... we're not saying anything negative about those. If Congress chooses to act, we're certainly not ruling out any further partnerships with Congress that help further the president's goal of protecting Americans' retirement and security," Mr. Rutledge said.

Michael Kreps, an attorney with Groom Law Group and former senior pension aide in the Senate, said: "There appears to be a strong bipartisan consensus for liberalizing the multiple employer plan rules to permit broader adoption. That has the potential to reduce costs and expand coverage. Obviously, the devil is in the details, so we are eager to see a proposed rule or other guidance."

Attorney Kent Mason with Davis & Harman, who represents numerous plan sponsors and service providers, said that regulatory changes could help, but legislation would go further. "Expanding MEPs through the regulatory process would be a major step forward in helping small employers adopt retirement plans. But because of the constraints applicable under the existing statute, regulatory expansion of MEPs may not be able to achieve nearly the same level of assistance to small employers as legislation can, so the need for the RESA provision on open MEPs is still very much needed."

Dan Kowalski, counselor to the secretary of the Treasury, said on the briefing call that one focus of modernizing the rules on MEPs will be the retirement plan disclosures required under the tax code, "so that they are both more understandable and useful for employees, and less costly and burdensome for employers." Treasury officials will also look to modernize the life expectancy and distribution tables used to calculate required minimum distributions.

Changing the rules on how required minimum distributions are calculated would also be helpful, said Larry Chadwick, senior managing director and head of government relations for TIAA-CREF. "With longer life expectancies comes an increased risk of outliving retirement savings; allowing retirees to keep more of their money in their retirement plan or IRA longer can help mitigate this risk," Mr. Chadwick said.