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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.