Bill Would Allow Small Employers to Participate in Open MEPs

The U.S. Senate Committee on Finance has approved a bill that would open the door for employers to participate in open multiple employer plans (MEPs), as well as provide nondiscrimination testing relief permanently to closed defined benefit (DB) plans and a fiduciary safe harbor for selection of lifetime income solution providers.

According to a summary of Committee Chairman Senator Orrin Hatch’s (R-Utah) modifications to the Retirement Enhancements and Savings Act of 2016, the bill would provide that small businesses could join MEPs to share the administrative burden and costs of a retirement plan. It would prevent all businesses participating in a MEP from losing their tax-preferred status if one business fails to meet the necessary criteria, and would allow for one Form 5500 to be filed for MEPs.

The proposal applies to years beginning after December 31, 2019, and to Forms 5500 for plan years beginning after December 31, 2019.

The bill also would specify measures that a plan fiduciary may take with respect to the selection of an insurer and a guaranteed retirement income contract in order to assure that the fiduciary meets the prudent man requirement.  The measures under the proposal are an optional means by which a fiduciary will be considered to satisfy the prudent man requirement with respect to the selection of insurers and guaranteed retirement income contracts and do not establish minimum requirements or the exclusive means for satisfying the prudent man requirement.

Research has shown plan sponsors may be hesitant to offer in-plan guaranteed retirement solutions in part due to a lack of safe harbor from the Department of Labor (DOL).

The bill would also make permanent the nondiscrimination relief provided for closed DB plans.

Other provisions in the bill would clarify that employees of nonqualified church-controlled organizations, in addition to employees of churches and qualified church-controlled organizations, may be covered under a section 403(b) plan that consists of a retirement income account; establish Pension Benefit Guaranty Corporation (PBGC) premiums for Cooperative and Small Employer Charity (CSEC) pension plans; change the after-death required minimum distribution rules applicable to defined contribution (DC) plans and IRAs; allow earnings on elective deferrals under a section 401(k) plan, as well as qualified nonelective contributions and qualified matching contributions (and attributable earnings), to be distributed on account of hardship.  In addition, the bill provides that a distribution is not treated as failing to be on account of hardship solely because the employee does not take any available plan loan.