Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...
By Sean Forbes
Sept. 21 — A catch-all retirement bill aimed at bolstering the defined contribution plan system easily passed the Senate Finance Committee by a vote of 26-0 on Sept. 21.
The Retirement Enhancement and Savings Act provisions deal with multiple employer plans, selection of lifetime income insurance providers, help with student loans and employee stock ownership, among others.
Open multiple employer plans, an idea that has excited lawmakers of both parties for several years as a way to help small employers offer 401(k)s, was high on the list of the bill’s amendments.
MEPs have been around since before the Employee Retirement Income Security Act became law in 1974, but the law has allowed only businesses that have a common nexus—such as those in the same industry—to participate. The open MEP concept would eliminate the common nexus requirement.
Other highlights of the legislation include a repeal of the law that bars contributions to traditional individual retirement accounts by anyone who reaches the age of 70 1 2 , and allowing middle-income employees of private start-up companies five years to pay capital-gains taxes on stock options they have exercised.
Passing open MEPs legislation is only step one. Step two is selling the idea to small employers.
John J. Kalamaridies, chief executive officer of Prudential Bank and Trust, and head of Prudential Financial Inc.'s retirement plan business line, told Bloomberg BNA Sept. 21 that because the bill is effective for plan years beginning after Dec. 31, 2019, there is time to drum up interest for open MEPs.
Open MEPs are a viable alternative to the state-run retirement initiatives for the private sector, which rely on payroll deduction IRAs, Kalamarides said. Five states have enacted mandated payroll-deduction IRAs: California, Connecticut, Illinois, Maryland and Oregon. If employers don’t already offer their own plan, they’ll have to use the state plan.
“Small business owners are going to have a choice in these five states,” Kalamarides said. “And if open multiple employer plans are a choice, they’re going to be able to look at these arrangements, and choose between that and the states. And this is great, because competition creates lower costs, better outcomes, and that’s good for American workers.”
Open MEPs also would provide savers with ERISA protections and allow them to make the greater contribution amounts allowed for 401(k) plans compared to those for IRAs, Kalamarides said. In addition, although employers would have some fiduciary responsibility, the duty to select and monitor investments would only be on the plan provider, he said.
Kent A. Mason, a partner with the benefits law firm Davis & Harman LLP in Washington, told Bloomberg BNA Sept. 21 that financial providers will have some legwork to do, but there are convincing selling points.
“It will take effective marketing and education regarding the advantages of MEPs, in terms of low cost and very little administrative duties,” Mason said. “This marketing and education would be provided by the financial institutions serving the MEP and by the independent fiduciaries that organize a MEP, like a trade association.”
To contact the reporter on this story: Sean Forbes in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)