The fact that President Obama’s 2017 budget proposal includes large allocations to establish pilot programs under which the Department of Labor and other executive agencies will push for wider use of open multiple employer plans (MEPs) should not surprise those closely following the retirement plan industry.
The president clearly hinted his budget proposal would include this type of language back in January, but now he’s putting the government’s money where his mouth is, so to speak, in releasing a cadre of 2017 budget proposal documents. Apart from the normal funding directed to the regulators that oversee the investing and retirement plan domain, two line items in particular jump out of the massive 2017 spending proposal for their relevance to employer-sponsored retirement plans.
First is a line item in the multi-agency Asset Tables labeled as “Permit unaffiliated employers to maintain a single multi-employer defined contribution plan.” In 2016 the president would like to spend some $97 million on this project, increasing by roughly $10 million to $20 million year over year until reaching $246 in 2026.
The budget proposal documents also include a smaller proposed expenditure over the next three years on “Pilot models for providing multiple-employer benefits.” Budget documents show the president would like to see $25 million spent on this effort in 2017, followed by $50 million and $25 million in the two subsequent years.
The moves fit in with previous comments aired by Labor Secretary Thomas Perez, who has said repeatedly that current law and guidance don’t sufficiently allow current plans or employers to take full advantage of the benefits of open MEPs, which he calls an exciting and useful tool for employees. The administration’s initiative is to reduce some of the plans’ compliance burdens so employers face fewer obstacles in their adoption.
NEXT: Some expert interpretation
In written commentary shared with PLANADVISER, Russell Investments Chief Research Strategist Bob Collie suggests the growing momentum behind the MEP concept and multiple employer plans is here to stay.
“Six months ago, I observed that MEPs were moving out of the shadows and into the spotlight,” he explains. “That movement has clearly continued. At present, MEPs are a pretty small part of the retirement savings landscape, and there are a couple of regulatory barriers to their wider adoption that would require some sort of DOL/legislative action to remove. President Obama’s 2017 Budget, published today, is the latest proposal to call for such action.”
Collie goes on to suggest support for open MEPs has been growing and that support “seems to be bipartisan.” This is because “MEPs offer obvious benefits for employers, especially small firms. It allows them to offer a 401(k) plan without having to sponsor it themselves. And it should be possible to structure the MEP legislative framework to clearly define (and limit) the extent to which the employer bears fiduciary responsibility for the plan.”
Fiduciary liability remains a major area of concern for many involved in the open MEP conversation, Collie says, “and a big reason that employers are wary of improving their retirement benefits.”
Collie notes that an expanded use of multiple employer plans should be a net positive for both industry providers and the participants depending on them. “As well as offering the convenience of payroll-deduction, an open MEP that operates within the 401(k) system offers a number of other advantages for workers, including the scope for employer contributions and higher contribution limits,” he concludes. “What’s more, fees may well be lower than is possible within the retail IRA market. And it would offer the protection of ERISA, which gives, in the words of the DOL, ‘a well-established uniform regulatory structure with important consumer protections, including fiduciary obligations.’”
Like Collie, other industry commentators also spoke out Tuesday to offer support for the president’s push for open MEPs. For example Lew Minsky, president and CEO of the Defined Contribution Institutional Investment Association (DJIAA), suggested the President’s budget proposal “includes new retirement security proposals that we believe help advance the policy discussion around improving retirement security.”
“The proposal to enable employers to bring institutional approaches to their employees through participation in multiple employer plan presents a real opportunity to expand access to retirement savings plans without sacrificing adequacy,” Minsky says. “We are hopeful that there seems to be broad consensus around allowing so-called ‘open MEPs,’ as such programs have also received bipartisan support in Congress.”