Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
By Kristen Ricaurte Knebel
Jan. 26 — The Obama administration plans to unveil several retirement-related initiatives in its fiscal year 2017 budget blueprint, including a proposal that would make it easier for unrelated employers to join together to form pooled 401(k)s without running “afoul” of ERISA, Labor Secretary Thomas E. Perez said.
The proposal that will be included in the forthcoming budget blueprint would remove “obstacles” presently in place to employers joining such pooled plans, known as “open multiple employer plans,” Perez said during a Jan. 25 call discussing the proposals. The obstacles include the requirement that employers have a commonality or nexus to participate in a such a plan and reap the benefits of a single-employer plan, he said. The president's budget proposal will also include “sufficient consumer protections” for participants in these plans, Perez said.
Also to be included in the proposal are items from previous budget blueprints from President Barack Obama such as automatic-enrollment individual retirement accounts and tax credits to encourage small employers to start up retirement plans, Perez said (22 PBD, 2/3/15).
The sum of all of these proposals would help “build a retirement system that reflects the 21st century workplace,” he said.
The budget proposal is set to be released Feb. 9.
Perez said there have been calls for employee benefits that workers can take with them from job to job or when they leave the workforce and that in an effort to facilitate that, there will be a proposal for a “portable benefits pilot” program included in the budget plan.
The proposal will include “demonstration funding for nonprofits and States to design, implement, and evaluate new, innovative approaches to provide more portable retirement and other employer-provided benefit coverage,” according to a fact sheet about the initiatives.
The goal of that will be to “develop and test models that are portable across employers and can accommodate intermittent contributions or contributions from multiple employers for an individual worker,” the sheet said.
One hope is that these changes will encourage nonprofits and other employers to create plans in which contractors and freelancer workers can participate, Perez said.
Currently, employers can join open multiple employer plans, but instead of being treated as participating in one large plan, each employer plan is treated individually under the law.
Open MEPs are single retirement plans involving two or more unrelated employers. Current law favors non-open MEPs, under which participating employers must share a common employment-based nexus or other genuine organizational relationship unrelated to the provision of benefits. Such plans are common, for example, among rural electric cooperatives and rural telephone cooperative associations.
The joint liability rule, also called the “bad apple” rule, has soured employers on adopting MEPs, because it states that any adopting employer that fails to meet tax-qualified plan criteria can disqualify the entire MEP's tax-qualified status.
Jeffrey Zients, director of the National Economic Council, who was also on the call, said that the forthcoming budget proposal would amend the law so that open MEPs are treated as single retirement plans, allowing them to “enjoy the economies of scale” that larger retirement plans enjoy.
There have been bipartisan discussions about the open MEP issue in the past, and Perez said he is hopeful to gain bipartisan support for this proposal.
Various retirement policy specialists and plan service providers have called for a loosening of restrictions on open MEPs, saying it would increase Americans' access to retirement plans.
The DOL has recently seemed open to revisiting the issue of open MEPs. In mid-November, the DOL rolled out guidance on state-run open MEPs, as well as state-sponsored payroll deduction individual retirement accounts (221 PBD, 11/17/15).
As for why the proposal will require congressional as opposed to regulatory action, Perez said that congressional action would be “preferable for long-term sustainability.”
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