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.
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.