2017 White House Budget Includes Open MEP Expansion

The Obama administration intends to extend workplace access to a retirement savings opportunity to more than 30 million Americans.

Calling retirement a “pillar of the middle class,” Labor Secretary Tom Perez introduced a number of retirement proposals that are going to be included in President Obama’s 2017 budget.

Speaking on a White House press call, Jeff Zients, Director of the National Economic Council, noted that one out of three workers does not have access to a retirement plan—a percentage which increases to half of workers at companies with fewer than 50 employees. To improve this access, he said the Obama administration is rolling out budget initiatives intended to give more than 30 million Americans access to a retirement savings opportunity at their workplace.

One of the primary initiatives is that the administration will be looking to work with Congress on broadening multiple employer plans (MEPs). Perez said that current law and guidance doesn’t allow current plans or employers to take full advantage of the benefits of open MEPs, which he calls an exciting and useful tool for employees. The administration’s initiative is to reduce some of the plans’ compliance burdens so employers face fewer obstacles in their adoption.

Perez said he hoped that this clarity and codification would allow for small businesses and independent contractors to take advantage of the plans. One of the unnecessary barriers he cited was that under current law, there has to be commonality between employers coming together to form a MEP. The administration would like to open up the program so that employers could more readily access an open MEP, such as those from different sectors but a similar location, for example, he said. The reason it is important to the administration that such opportunities get codified is that it wants to increase access and reduce burdens but make sure there are sufficient consumer protections for participants, he noted.

The largest change being called for by the administration is that of the automatic IRA, in which employers without a retirement plan would offer automatic enrollment into IRAs. Zients noted that this proposal has bipartisan roots, being the brainchild of both The Heritage Foundation and the Brookings Institution and Perez said he is looking forward to working with lawmakers on these bipartisan issues.

In addition to promoting these ideas, the budget will include a $100 million grant proposal to encourage the development of portability ideas for benefits that will allow workers to take their retirement benefits and other employment-based benefits from job to job.

The budget initiatives continue the work of the administration’s initiatives that have already begun, such as the conflict of interest rulemaking, the myRA retirement savings vehicle, and the current state-sponsored retirement plan initiatives. The administration is working to build a retirement system that reflects the 21st century workplace, Perez said, with Zients noting that “acting on today’s proposals should be common sense.”

When asked about the status of one of the Department of Labor’s largest retirement initiatives, Perez’s answer suggested reports that the DOL’s conflict of interest rule—also known as revisions to the fiduciary definition under the Employee Retirement Income Security Act (ERISA)—will be sent to the Office of Management and Budget (OMB) soon are incorrect. Perez said the DOL is still “neck deep” in the process of reviewing the significant number of comments submitted in last fall’s comment period and hopes to reach a conclusion in the coming months.

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SCOTUS Again Remands Stock Drop Case

The Supreme Court returned Amgen’s ESOP case to the lower court for a second time.

The U.S. Supreme Court in a per curiam decision on Monday sent back, for the second time, the 9th U.S. Circuit Court of Appeals’ decision reviving a proposed Employee Retirement Income Security Act (ERISA) class action against Amgen Inc

SCOTUS says in its decision that the appellate court failed to properly evaluate the complaint, given a new precedent. 

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The first time, the high court vacated and remanded, in light of Fifth Third Bancorp v. Dudenhoeffer, which set forth the standards for stating a claim for breach of the duty of prudence against fiduciaries who manage employee stock ownership plans (ESOPs). On remand, the circuit court reiterated its conclusion, and this time, the Supreme Court reversed for Amgen, saying in its four-page, unsigned opinion, that it “has not found sufficient facts and allegations to state a claim for breach of the duty of prudence.”

According to the high court’s ruling, the 9th Circuit failed to assess whether the complaint in its current form has plausibly alleged that a prudent fiduciary in the same position could not have concluded that the alternative action “would do more harm than good.”

The circuit court did not correctly apply Fifth Third, the high court said, but emphasized that Amgen stockholders are “masters of their complaint. The court leaves to the District Court in the first instance whether the stockholders may amend it in order to adequately plead a claim for breach of the duty of prudence guided by the standards provided in Fifth Third.”

Notwithstanding the lack of a presumption of prudence, the Fifth Third decision acknowledged that the congressional encouragement for creating ESOPs could potentially clash with ERISA’s general duty of prudence.

Given the potential for conflict that arises when fiduciaries are alleged to have failed to act on inside information about the value of the employer’s stock, ESOP fiduciaries confront unique challenges, the ruling said. Fifth Third therefore laid out standards to help “divide the plausible sheep from the meritless goats.”

The Supreme Court’s opinion is here.

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