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By Sean Forbes
Oct. 28 — Support for expanding multiple employer plans to unrelated employers continued to gather steam at a Senate subcommittee hearing, but help is needed from the federal government and Congress to achieve that goal, witnesses told the lawmakers.
Witnesses at the informal hearing on retirement plan options for small businesses, held Oct. 28 by the Senate Health, Education, Labor and Pensions Subcommittee on Primary Health and Retirement Security, were largely in agreement that unrelated employers should be able to join multiple employer plans (MEPs), which is discouraged under current law.
“Cost, administrative hassle and fiduciary responsibilities” are barriers that deter many small employers from offering retirement plans, but resolving those problems could boost interest in adopting plans by as much as 250 percent, said John J. Kalamarides, senior vice president for institutional investment solutions at Prudential Retirement in Hartford, Conn.
Only about half of workers employed by small firms—defined as those with less than 100 workers—have access to an employer-based retirement plan, Kalamarides said, citing a Prudential report on MEPs released earlier this year.
Summarizing recommendations made in the Prudential report, Kalamarides said that Congress should address the joint liability rule under the tax code; eliminate the “commonality of interest” rule under the Employee Retirement Income Security Act; shift fiduciary liability from employers to the MEP itself, where appropriate; and give the Department of Labor responsibility for enforcement.
Open MEPs—or “small business pooling” in subcommittee Chairman Michael B. Enzi's (R-Wyo.) phrasing—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.
Lance Schoening, director of product management for Principal Financial Group in Des Moines, Iowa, speaking on behalf of the American Benefits Council, agreed with Kalamarides on the need to revise the rule.
In his written testimony, Schoening said that the Internal Revenue Service or Congress “should provide that the adverse consequences of a non-compliant employer are limited to that employer and allow the MEP to spin the offending employer out of the MEP.”
Witnesses were responding to questions the Tax Reform Working Group on Savings and Investment raised in a July report, which asked for information on topics such as how the federal government can encourage small businesses to help their employees with retirement savings and the statutory or regulatory challenges in offering retirement plans.
The group was one of five Senate Finance Committee panels that developed recommendations on overhauling the tax code.
Upcoming guidance from the Department of Labor may address MEPs. Phyllis C. Borzi, assistant secretary for the DOL's Employee Benefits Security Administration, said at a conference earlier this month that subregulatory guidance expected by the end of the year may help states that want to encourage small employers to adopt either master and prototype plans or MEPs.
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Text of the bipartisan tax working group report is at http://src.bna.com/Nm. Copies of the written testimony is at: ABC (http://src.bna.com/M6); AARP (http://src.bna.com/NH) and the Chamber of Commerce (http://src.bna.com/N1).
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