On August 31, 2018, President Trump issued an Executive Order aimed at enhancing retirement security for American workers. This directive instructed the Department of Labor (DOL) and the Treasury Department to take steps to expand access to Multiple Employer Plans (MEPs). Specifically, the DOL was tasked with determining whether to issue a notice of proposed rulemaking or other guidance to clarify the definition of an “employer” in this context. The Treasury Department was also directed to consider amendments to regulations regarding the tax qualification requirements for MEPs, particularly concerning the responsibilities of employers participating in these plans.
In response to the Executive Order, the DOL published a Notice of Proposed Rulemaking (NPRM) on October 23, 2018. This NPRM aims to simplify the process for small businesses to offer retirement savings plans through Association Retirement Plans. By allowing small businesses to collaborate, they can provide 401(k) plans to their employees more easily. The NPRM clarifies the conditions under which employer groups, associations, or professional employer organizations (PEOs) can sponsor workplace retirement plans, defining them as “employers” under ERISA for establishing individual account pension plans.
Under the NPRM, participating employers must sign a participation agreement that outlines the rights and obligations of both the MEP sponsor and the employer. However, these employers will not be seen as sponsoring separate plans under ERISA. Instead, the MEP will be treated as a single employee benefit plan, with the MEP sponsor acting as the plan administrator responsible for compliance with ERISA’s requirements, including reporting and fiduciary duties.
Interestingly, the DOL chose not to include two specific categories of MEPs in the current NPRM due to differing policy concerns: (1) “Open MEPs,” which cover employees of unrelated employers, and (2) “Corporate MEPs,” which include employees of related employers not in the same controlled group.
The NPRM also highlights significant differences between the DOL’s proposal and various legislative initiatives in Congress. The DOL’s approach is more limited, relying solely on its regulatory authority under ERISA, while Congress has the power to enact statutory changes. The DOL believes that clarifying the term “employer” will provide a clear legal standard for MEPs under ERISA.
As it stands, the NPRM is unlikely to significantly impact ongoing legislative efforts regarding Open MEPs. Comments on the DOL’s NPRM were due by December 24, 2018. Meanwhile, the Treasury Department indicated plans to issue an NPRM on the “one bad apple rule” by April 2019.
Both the House and Senate, with bipartisan support, aim to finalize retirement savings reforms by the end of the year. The Family Savings Act of 2018 represents the House’s initial negotiating position with the Senate on the RESA (Retirement Enhancement Security Act), which passed unanimously out of the Senate Finance Committee. Recently, House Ways and Means Committee Chairman Kevin Brady (R-TX) introduced a package that includes provisions related to Open MEPs.
Under this provision, multiple employer plans meeting specific criteria, including having a pooled plan provider, would be classified as “pooled employer plans.” The pooled plan provider would act as a fiduciary and ensure compliance with tax and ERISA requirements. If one employer in a pooled provider plan fails to meet tax-law requirements, the other employers would remain unaffected. Additionally, the criteria for employer participation in multiple employer plans would be expanded, eliminating the need for relatedness among employers. This provision would take effect for plan years beginning after December 31, 2019.
As the retirement savings landscape evolves, it is crucial to monitor developments, especially with Democrats taking control of the House in the next Congress. Incoming House Ways and Means Committee Chairman Richard Neal (D-MA) is expected to pursue further reforms, while incoming Senate Finance Committee Chairman Chuck Grassley (R-IA) will also set priorities that may include retirement savings reform.
