The Retirement Enhancement and Savings Act of 2018 (RESA) — What does it Mean for MEPs?
We have long touted the benefits of multiple employer plans, or MEPs, which can provide a cost-effective way of managing a retirement plan. As its name indicates, MEP adopters are a number of employers who are involved in “commonality,” or the same line of business. Combining into a MEP can make it simpler for a given company or business owner to run a retirement plan while providing an appealing level of efficiency and governance.
MEPs currently cover about 4.5 million people – an impressive enough figure, although in February there was a total of about 126.40 million people employed on a full-time basis in the U.S. There are various reasons why MEPs are not more widespread, but for our purposes here one of the most important ones is that “commonality” requirement.
However, that may soon change.
In March, the Retirement Enhancement and Savings Act of 2018 (RESA) was introduced in the U.S. Senate, sponsored by Senate Finance Committee Chairman Orrin Hatch (R-Utah) and Ranking Member Ron Wyden (D-Oregon). RESA contains a multitude of provisions, but one particular component caught my eye: If passed, it would re-introduce the pooled employer plan, or PEP (also known as an “open MEP”), to the conversation.
A previous version of the bill was reported out of the Finance Committee in September of 2016 with an unprecedented, unanimous vote of 26-0. However, in the wake of the 2016 presidential election, legislative priorities effectively were reshuffled and RESA ended up somewhere towards the bottom of the deck.
A House version of RESA was also introduced last month by Rep. Ron Kind (D-Wisconsin) and Rep. Mike Kelly (R-Pennsylvania).
What does a PEP do that a MEP cannot? As its name indicates, it removes the “commonality” proviso so that any number of companies operating in a variety of sectors could theoretically come together to offer a retirement plan that would allow employers to share administrative costs and reduce some of their compliance burdens.
As currently structured, RESA would allow PEPs to operate with a single plan document, a single Form 5500 filing, and a single plan audit. The Department of Labor could also extend small plan audit rules to PEPs with fewer than 1,000 participants if no employer has more than 100 participants.
Additional compliance requirements for a PEP would include that it be run by a pooled plan provider (PPP) – that is, a person or entity such as a third-party administrator that would be the named fiduciary and act as the ERISA Section 3(16) plan administrator; that one or more bank trustees who are not participating employers are designated to ensure that contributions are properly collected and remitted, and that assets are duly held for safekeeping; that employers would retain fiduciary responsibility for selecting and monitoring the PPP and other named fiduciaries; and that there would be no unreasonable restrictions, fees, or penalties.
RESA would also allow for electronic delivery of plan information to PEP participants — something that is not allowed for other MEPs or any other plan types. The PEP would be the only structure with a free statutory pass to reduced cost in this respect.
While it looks like closed MEPs would not be convertible into PEPs, retirement vehicles other than closed MEPs are convertible to PEPs if the plan administrator so decides.
Additional facts about what RESA, if passed, could mean for MEPs and PEPs can be found here.
Some of RESA’s other key provisions include:
- Allowing earnings on elective deferrals, qualified non-elective contributions and qualified matching contributions under a 401(k) plan to be distributed on account of hardship.
- Creating a new fiduciary “safe harbor” for employers who opt to include a lifetime income investment option in their defined contribution plan.
- Permitting participants to make direct trustee-to-trustee transfers (or transfer annuity contracts) of “lifetime income investments” that are no longer authorized to be held as investment options under a qualified defined contribution plan.
- Requiring employers to provide defined contribution plan participants with an estimate of the amount of monthly annuity income that their accounts, if annuitized, would generate during retirement. The estimate would be included on participants’ annual plan statements.
What are the chances of RESA being passed this time around, as opposed to when it first surfaced in 2016? Pretty good, from what we hear from industry insiders. Such groups as the Insured Retirement Institute, the American Council of Life Insurers, and the American Association of Retired Persons (AARP) have all expressed support for its passage.
We will see how it all unfolds.
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