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Nov. 23 — State-backed open multiple employer plans aimed at expanding private-sector retirement savings options are poised to take off—although not without significant challenges—under recent Department of Labor soft guidance.
Phyllis C. Borzi, assistant secretary of the DOL's Employee Benefits Security Administration, described the state-backed open MEPs initiative as “virgin territory.”
“We want them to succeed, we want anybody to succeed, public or private sector who tries to expand coverage, because goodness knows, we need to do that,” Borzi said Nov. 19 during a program on EBSA developments.
Borzi's comments came days after the DOL rolled out guidance on state-run open MEPs (RIN 1210-AB74), as well as state-sponsored payroll deduction individual retirement accounts.
Open MEPs are single retirement plans involving two or more unrelated employers. The new DOL guidance relaxes prior rules that required participating employers to share a common employment-based nexus or other genuine organizational relationship unrelated to the provision of benefits.
Challenges to state-backed open MEPs may come from two angles: industry opposition and the need for implementation guidance.
The concept of allowing unrelated employers to team up in an open MEP is supported by an assortment of strange bedfellows in the retirement world, such as the Chamber of Commerce, the Securities Industry and Financial Management Association and AARP.
Although the concept has its share of support, the package of DOL guidance has its detractors, who say that it's anti-competitive. But Kathleen Kennedy Townsend, founder of the Center for Retirement Initiatives at the McCourt School of Public Policy at Georgetown, told Bloomberg BNA that the facts argue otherwise, and necessitate the states take action.
“Basically, you’ve got a situation where 50 percent of employers don’t offer a retirement plan. They just don’t. And 50 percent of Americans don’t have a retirement plan,” Townsend said.
It's going to take a “massive dedication of resources” for the states to launch open MEPs since so much implementing guidance will be needed, Robert J. Toth of the Law Office of Robert J. Toth LLC in Fort Wayne, Ind., told Bloomberg BNA. The DOL, the Internal Revenue Service, the Treasury Department, the states and even the Securities and Exchange Commission will play a hand in developing the guidance, he said.
“When you get to the close details of these things, they’re hard to do. They're hard to administer properly on a regular basis, even for a highly skilled organization,” Toth said.
One issue that will need to be resolved is how or if a state sponsor can fix plan errors through the IRS's Employee Plans Compliance Resolution System, Toth said.
“We're walking into a brand new world by doing this, and we’re talking about massive complications,” Toth said.
Under the guidance, open MEPs can also be formed across state borders depending on whether the individual states have the extraterritorial authority to do so.
Some New England states have approached the DOL for guidance about creating a regional MEP, Borzi said. “And we told them we'd be happy to work with them as they try to design it, but I don't see any theoretical problem with doing that,” she said.
In addition to addressing cross-border authority, guidance is also needed for instances in which a group of states try to bring in employees from nonparticipating states, David N. Levine, a principal at Groom Law Group Chartered in Washington, told Bloomberg BNA.
The department's reasoning in its guidance on the state-run open MEPs that the states have a “unique representational interest in health and welfare of their citizens” raises the question of whether that logic holds when a MEP is opened up to the citizens of a state not already in the plan, Levine said.
The answer isn't clear, but the proposed rule on payroll deduction IRAs, issued the same day as the interpretive bulletin that included the MEPs guidance, may give some indication, Levine said. In that proposal, the DOL asked about whether there should be requirements on employers to have certain connections to the state. “So you put those two pieces together, if the department is now going to say one state can allow people of other states in their open MEP, that’s a whole step forward,” Levine said.
Industry opposition may get “amped up” if states are allowed to broaden their reach to other states, Levine said.
But on a positive note, Levine said that legislation for extending retirement access to more people “could easily” be expected in 2016, with open MEPs perhaps the first to go forward.
Open MEPs have attracted bipartisan support over the past several years, and if legislation does go through next year, “it will establish a framework for the public and the private on a consistent set of rules on how to move forward with open MEPs,” Levine said.
The open MEP approach is “much more valuable in importance than” the payroll-deduction IRAs because MEPs have the advantages that ERISA brings, Steven Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees, AFL–CIO, told Bloomberg BNA. Those advantages include plan design flexibility, the ability to accept contributions from both participants and sponsors, and lifetime benefit payments, he said.
Townsend cited other advantages, such as higher contribution rates, pooled funding with lower fees, more asset classes to choose from and, under the DOL guidance, state fiduciary responsibility for the plan, providing relief for the adopting employers.
Said Kreisberg: “Ultimately I think it’s going to help achieve retirement security objectives in ways that” IRAs can’t.
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