Today, President Trump issued an Executive Order directing the Department of Labor (“DOL”) and the Treasury Department to ease the barriers employers face in offering retirement plans and increase employee access to retirement benefit programs. One-third of private-sector employees in the American workforce are said to lack access to workplace retirement plans.
First, the DOL and Treasury are directed to consider making changes to the existing rules regarding Association Retirement Plans, also known as Multiple Employer Plans (“MEPs”). A MEP (which is different from a multiemployer plan for employees covered by collective bargaining agreements) is a type of retirement plan that pools contributions made by two or more unrelated employers. Small and mid-sized employers may be able to reduce the administrative and overhead costs (e.g., recordkeeping and discrimination testing) of offering a retirement plan on their own by the economies of scale that result from pooling the resources of several participating employers. There are no restrictions under the Internal Revenue Code as to whom may participate in such plans, but the DOL has required that there be certain types of relationships between entities participating in such plans, such as trade associations. In its recently issued final regulations with respect to association health plans, the DOL modified its historic position with respect to welfare plans, but did not address the treatment of pension plans. This is an issue with respect to which there is bipartisan support, and legislation addressing the same issue has been introduced in Congress. That legislation would also address another hurdle to these open-MEPs, by eliminating the “one bad apple” rule, under which an act that would disqualify the plan of one participating employer would adversely affect the plans of all participating employers. An unresolved issue with respect to open MEPs is the extent to which participating employers would retain residual fiduciary liability under such plans.
Second, the DOL and Treasury are directed to identify ways to lessen the administrative burdens for maintaining retirement plans, which often prevent small businesses from offering them. In particular, the order directs these government agencies to improve the efficiency of notice and paperwork requirements associated with retirement plans.
Third, as a way of increasing retirement preparedness, the Treasury is directed to review and update the mortality tables used to calculate minimum required distributions (“MRDs”) under the Internal Revenue Code for individual retirement accounts (“IRAs”) and defined contribution plans such as 401(k) plans. Currently, IRA participants must commence distributions no later than the April 1 after the year in which they attain age 70½, and a similar rule applies to retirees in tax-qualified defined contribution plans. Americans have experienced longer life expectancies in recent years and with updated mortality tables, the MRD amounts will decrease, thereby allowing participants to keep more money in their 401(k) plans and IRAs for longer periods. This portion of the Executive Order is intended to address the concern of workers that they will outlive their retirement savings.