On Friday, August 31, President Trump signed an executive order related to retirement policy. The Executive Order on Strengthening Retirement Security in America directs the Department of Labor (DOL) and the Treasury Department to consider regulations or guidance affecting three specific areas of retirement policy. First, the executive order directs the DOL and Treasury to consider regulation or guidance expanding the availability of multiple employer retirement plans (MEPs) and fixing some of the challenges of current MEP structures within the next 180 days. Second, it directs the DOL in consultation with Treasury, within the next year, to review actions that could be taken to improve participant notice requirements to reduce the paperwork and administrative burden for plan sponsors. Lastly, the executive order directs that, within the next 180 days, the Treasury must review and consider loosening the required minimum distribution (RMD) rules that apply to individuals over age 70 1/2.
Multiple Employer Plans
MEPs already exist, but as they stand today, they require participating employers to be related, whereby they share an economic nexus and commonality of interests unrelated to the retirement plan. Today you’ll see MEPs most commonly offered by trade groups or other industry associations. The executive order is primarily concerned with promoting what most in the industry call open MEPs, where employers do not have to be related to qualify for participation.
The lead-in to the executive order discusses the policy rationale for promoting these open MEPs, which is to expand coverage of workplace savings plans for American workers. According to the Bureau of Labor Statistics, 23 percent of all private-sector, full-time workers lack access to a workplace retirement plan. That percentage increases to 34 percent when part-time workers are considered. The concept of expanding coverage for American workers is rooted in the recognition that people are far more likely to save for retirement when they have a plan available through their workplace, and the policy supporting expanding coverage has generally been met with bipartisan support for many years now. In fact, there are several legislative proposals outstanding right now that would pave the way for these open MEPs to expand such access and coverage, the most prominent of which is the Retirement Enhancement and Savings Act (S. 2526; H.R. 5282), commonly called RESA, which many expected to make its way through Congress after this fall’s midterm elections.
By signing the executive order, the president highlighted how slowly the legislative process has been progressing and took this component out of Congress’s hands for now. The executive order directs that, within the next 180 days, the DOL should consider issuing regulations or other guidance to pave the way for open MEPs and further directs the DOL to consider policies to expand access to retirement plans for part-time workers, sole proprietors, working owners, and other “entrepreneurial workers with non-traditional employer-employee relationships.” While the DOL has a good bit of freedom in how it approaches this task, we presume they would move fast in issuing regulatory guidance to remove the related—or commonality—requirements found in the DOL’s current MEP guidance.
The executive order also directs Treasury to consider issuing regulations or guidance of its own related to MEPs. Guidance the retirement plan industry wants would be to fix the “one bad apple” rule under which one employer can put an entire MEP’s tax qualification at risk by failing to comply with the rules or requirements of being a plan sponsor. Since eliminating this rule is key to growing open MEPs and successfully expanding access to the large number of uncovered American workers, we presume that, if the DOL issues its guidance, Treasury will follow suit.
Improving Effectiveness and Reducing Cost of Notices and Disclosures
For some time now, retirement plan sponsors and recordkeepers have been lobbying the DOL to allow for required notices and disclosures to default to electronic delivery wherever possible. Historically, we have seen differing partisan views on electronic delivery as default, with many fearing lower-income and elderly participants would be disadvantaged by such policies. However, extreme views in this area have tempered; both sides recognize that rules must evolve to reflect the ways people more commonly communicate today—i.e., through email and smartphones. The executive order directs that within a year, the DOL, in consultation with Treasury, review actions that could be taken to make retirement plan disclosures “more understandable and useful” to plan participants and beneficiaries while “also reducing the costs and burdens” of these disclosures on plan sponsors and fiduciaries. The executive order specifically directs the review to include an “exploration of the potential for broader use of electronic delivery.”
Required Minimum Distributions
To make it possible for retirees to keep their savings in their 401(k)s and IRAs longer, the executive order further directs that within 180 days, Treasury should review the RMD rules to see if changes can be made. Today, plan participants must begin drawing on their retirement account balances at age 70 1/2 per the Internal Revenue Code. RMDs are calculated by taking an account balance and dividing by an “applicable distribution period” determined by life expectancy tables contained in Treasury regulations finalized in 2002. Recognizing that people are generally living longer now than even 16 years ago, the executive order also directs Treasury to consider updating these life expectancy tables to reflect current mortality data. This alone would stretch out the period over which RMDs are paid.
Impact to Plan Sponsors
The executive order does not create any immediate to-dos for you as a plan sponsor. As the primary thrust for the MEP guidance is to expand coverage for American workers without plans, it is unlikely as a current plan sponsor that you will be immediately impacted by any guidance in this area. The two areas most likely to affect current plan sponsors are any guidance or regulations that impact RMD rules or changes to participant disclosures and notices. We will continue to monitor all three of these issues and keep you posted as we learn more.
If we can answer any additional questions you may have, please let your CAPTRUST financial advisor know. As always, thank you for your continued trust.
For more information, please contact your CAPTRUST financial advisor at 800.216.0645.