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 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.”
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