Industry welcomes changes; details still being worked out
President Donald Trump's Aug. 31 executive order directing administration officials to expand retirement savings options by revisiting rules on open multiple employer plans and minimum distributions was welcomed by retirement savings advocates, who say legislative changes are also necessary.
"Small businesses will no longer be at a competitive disadvantage, and small-business workers will now have many more choices," Mr. Trump said at a North Carolina event announcing the order. He was joined by Labor Secretary Alexander Acosta, who said, "401(k)s are a straightforward, proven vehicle" to retirement savings that could help an estimated 42 million people who work for small businesses.
James Sherk, White House domestic policy special assistant, said on a White House press briefing call, "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."
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."
Lynn Dudley, senior vice president for global retirement and compensation policy with the American Benefits Council in Washington, called the order "a positive step forward. More can and should be done to help employers sponsor plans, including multiple employer plans, and retain the plans that they are voluntarily sponsoring," Ms. Dudley said. Her group supports legislation to expand MEPs. "We hope that the renewed focus on retirement security results in laws that encourage employers to provide savings plans and help employees share in the prosperity of the American economy," Ms. Dudley said.
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 any one plan must have, and amending the "one bad apple" rule so that one employer's mistake would not disqualify the entire MEP.
"Allowing one or more unrelated employers to pool resources will enhance opportunities for more cost-effective retirement programs that would have either been too costly or administratively burdensome for employers to provide individually. Businesses will now be better equipped to compete for talent, and workers will have greater retirement security," said Aliya Wong, executive director of retirement policy for the U.S. Chamber of Commerce.
A survey conducted in April by Prudential Financial Inc. and Morning Consult found 78% of American workers support the idea of MEPs.
Making it easier for unrelated employers to join open MEPs also is 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 also is being considered in the House as part of a broader tax reform 2.0 effort.
Mr. Rutledge, on the press call, 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."
Michael Kreps, an attorney with Groom Law Group in Washington 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 A. Mason with Davis & Harman LLP, Washington, who represents numerous plan sponsors and service providers, said 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," Mr. Mason said. "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."
Changing RMD rules
Treasury officials also will look to modernize the life expectancy and distribution tables used to calculate required minimum distributions, which currently must start at age 70½.
Changing the rules on how required minimum distributions are calculated would be helpful, said Larry Chadwick, Washington-based 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 (individual retirement account) longer can help mitigate this risk," Mr. Chadwick said.
Cathy Weatherford, president and CEO of the Insured Retirement Institute, agreed that required minimum distribution rules in effect now deny "older Americans the ability to continue to grow their savings," while current rules for MEPs are "one of the most substantial obstacles for small-business employers to offer" workplace retirement savings plans.
Ms. Weatherford said the executive order could help spur Congress to act on the RESA legislation, which includes provisions on lifetime income disclosure and options.