Compliance June 22, 2016

Hearing Witnesses Share Suggestions for Open MEPs

Many witnesses agreed that any open MEP legislation should not be overly burdensome and should not include the "one bad apple" rule.
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In a letter submitted to Chairman Mike Enzi (R-Wyoming) and Ranking Member Bernie Sanders (I-Vermont.) of the Senate Committee on Health, Education, Labor and Pensions (HELP) Subcommittee on Primary Health and Retirement Security for its hearing about open MEPs, IRI President and CEO Cathy Weatherford said, “Unfortunately too many Americans don’t have access to a retirement plan at work, leaving many ill-prepared to meet their future financial needs. This coverage gap is most acute among workers of small businesses. Allowing more startups and small businesses to join multiple employer plans would greatly increase the number of workers with access to a workplace plan and go a long way toward helping Americans prepare and save for their future financial security.”                                 

This sentiment was expressed by those giving testimony during the hearing also. James Kais, senior vice president and National Retirement Practice leader at Transamerica, pointed out that Transamerica Center for Retirement Studies’ research found that 22% of small companies (10 to 499 employees) that do not offer a 401(k) or similar plan and are not likely to offer one in the next two years would consider joining an MEP.

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Kais noted that current law requires “commonality” or a nexus among employers (e.g., in the same line of business) to join in an MEP.  “Elimination of the commonality requirement will increase the number of small employers that provide a retirement plan for their employees by joining in an MEP,” he said.

Several hearing witnesses, including Kent Mason, partner at Davis and Harman LLP, mentioned that the “one bad apple” rule is an overly punitive rule that inhibits adoption of MEPs. “If one noncompliant participating employer in an MEP can trigger enormous tax liabilities for all other participating employers, that can understandably prevent employers from participating in an MEP,” Mason said. Mason and several other witnesses expressed the need to eliminate the “one bad apple” rule, instead kicking out the non-compliant employer and leaving the plan intact for the other employers.

NEXT: What open MEP legislation should include

Nick Favorito, deputy treasurer for Retirement Services for the State of Massachusetts, discussed the state’s experience with trying to establish an MEP for non-profits. In 2012, establishing the plan as a volume submitter plan seemed most practical. However, for a volume submitter all employers would have their own autonomous plans and would be responsible for maintaining their own documents, trust agreement, IRS form 5500 filings and plan records. 

Favorito said a better structure would be An MEP considered a single plan and trust under the Employee Retirement Income Security Act (ERISA). The plan document would provide that the plan is subject to Title I of ERISA and is intended to comply with Internal Revenue Code tax qualification requirements. The MEP would have a single separate trust holding contributions made by the participating employers, the employer's employees, or both.  Only a single Form 5500 annual return report would be filed for the whole arrangement. 

Michele Varnhagen, senior legislative representative at AARP, suggested Congress should make clear any MEP sponsoring entity should timely receive and invest employee and, if permitted, employer contributions; administratively track contributions, investments, and payments; solicit bids and negotiate with appropriate retirement investment firms; prepare and distribute understandable plan documents to employers and employees; train staff to answer employer and employee questions and resolve disputes; and obtain adequate liability insurance and. if required, bonding.

In addition, Varnhagen said any MEP should agree to act in a fiduciary capacity and comply with ERISA’s longstanding consumer protections. If Congress does not require the MEP sponsor to act as a fiduciary, then it or the Department of Labor should restrict the types of investments and limit the maximum fees that may be charged.

Many witnesses agreed that any open MEP legislation should not be overly burdensome and should not adversely affect the “closed MEPs” that are already in placing and working for employees.

To replay the hearing and download witness testimony, click here.   

The American Benefits Council and Plan Sponsor Council of America (PSCA) also issued statements of support. PSCA commentary with additional background can be found at http://www.psca.org/MEP2016.
Compliance June 22, 2016

Senators Warren and Daines Want to Build DC Account 'Lost and Found'

A group of Senators are putting aside party divisions to introduce the Retirement Savings Lost and Found Act. 
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U.S. Senators Elizabeth Warren, D-Massachusetts,  and Steve Daines, R-Montana, have introduced the Retirement Savings Lost and Found Act, aimed at solving some of the issues Americans face when trying to manage and organize multiple defined contribution (DC) plan accounts.

According to the senators, the increasing prevalence of DC plans means workers have become responsible for tracking, managing, and consolidating multiple retirement accounts as they move from job to job.

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“But moving accounts from job to job is not easy,” the senators warn, observing that Government Accountability Office (GAO) reporting has found that many Americans leave their jobs each year without giving their employers directions with what to do with their retirement accounts. The senators also cite a “recent survey by the investment management firm TIAA that found 30% of Americans have left an account at their previous employer, resulting in tens of millions of Americans with one neglected account and millions more with two or more accounts.”

The senators argue their bill would help to address some of the unintended consequences that have arisen alongside the otherwise overwhelmingly positive impacts of automatic enrollment into DC plans, as permitted by the Pension Protection Act of 2006. As has been widely reported,  auto-enrollment tends to result in more people in an employee population starting to save, but it also means more novice investors will gain accounts without taking active ownership. In rare cases, employees may not even realize they have a retirement account at a given employer, for example if they are part of a very large plan that lacks a solid communication strategy.

According to Senators Daines and Warren, the new proposal “uses the data employers are already required to report to create a national, online, lost and found tool for Americans’ retirement accounts. This means that with the click of a button, any worker can locate all of their former employer-sponsored retirement accounts. “

The senators say the Retirement Savings Lost and Found Act also would allow employers to more easily invest abandoned accounts into target-date funds rather than in capital preservation options that offer little chance of growth. In addition, truly “orphaned funds” with balances less than $1,000 will be transferred to Treasury securities, including in the myRA format, “so that balances earn a positive return.” 

Text of the proposal shows the underlying mechanism of the lost and found would allow those who believe they own a missing account to view contact information for the plan administrator currently overseeing the DC plan in question.

AARP and the Pension Rights Center have both voiced support for the proposal, according to the senators. The full text of the bill is here. 

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