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By Sean Forbes
June 21 — Retirement policy is an area of great division among Democrats, Republicans, industry and consumer groups, but loosening the requirements on multiple employer plans is one idea they all agree would encourage more small businesses to offer plans and give more people the ability to save.
Many small businesses don't offer retirement plans because of the costs, complexities and concerns about fiduciary liabilities, witnesses said at a roundtable hearing held June 21 by the Senate Health, Education, Labor, and Pensions Subcommittee on Primary Health and Retirement Security.
A MEP is a qualified retirement plan maintained by more than one employer. Unlike a multiemployer plan, a MEP is not collectively bargained.
Two requirements under current law need to be eliminated to encourage more small businesses to participate in MEPs, witnesses said—the common nexus rule and the “one bad apple” rule.
Under current law, employers must have a common nexus—such as being in the same industry—to be in a MEP. Many of the policy proposals floated in recent years have called for eliminating the nexus requirement in order to encourage the creation of “open MEPs.”
Under the one-bad-apple rule, if one employer in a MEP violates tax qualification rules, the entire plan is disqualified.
Momentum is building to change both of those rules. Last fall, the Department of Labor issued guidance that would pave the way for states to sponsor open MEPs as a way of expanding private-employer retirement savings.
Several bills have been introduced in the past few years aimed at creating open MEPs, most recently the Retirement Security Act of 2015 ( S. 266), sponsored by Sen. Susan Collins (R-Maine) and Sen. Bill Nelson (D-Fla.).
Proposals should address all kinds of workers, including not only full-time employees at small businesses, but also part-time workers, individuals in the gig economy and independent contractors, Sen. Elizabeth Warren (D-Mass.) said at the hearing.
Consumer protections, such as having an independent entity sponsor a plan, are needed for open MEPs to continue to work, said Michele Varnhagen, senior legislative representative for AARP in Washington.
Jim Kais, senior vice president for special markets and defined benefits in Transamerica's Chicago office, said that economies of scale are necessary for open MEPs to be viable. “We're very careful about going too narrow with these pooled arrangements,” so Transamerica is focusing on forming MEPs with trade associations and cooperatives, among others, Kais said.
Kais also said that eliminating the commonality requirement—an “extraordinarily gray area”—would help expand MEP adoption.
“I'm going to assume we're going to be expanding it,” said Sen. Michael B. Enzi (R-Wyo.), chairman of the subcommittee.
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