The President has instructed the agencies to work on regulations enhancing retirement security through, for example, expanding the ability of small employers to join a MEP and facilitating greater use of electronic means of providing required disclosures to participants.
On August 31, 2018, President Trump signed an executive order (EO) directing the Departments of Labor (DOL) and Treasury to work on a number of matters affecting the private retirement system. The EO includes the following directives:
Expanding multiple employer plans (MEPs); limited amount can be done without Congress. Under current DOL guidance, a MEP exists only if the employers participating in a retirement plan have a strong connection unrelated to the provision of retirement benefits. MEPs enjoy certain economies of scale and efficiencies that the participating employers would typically not experience if they were each responsible for their own retirement plan. As noted, RESA and the House retirement bill would allow completely unrelated employers to participate in an “open MEP.”
The EO directs DOL to clarify and expand the circumstances under which small and mid-sized businesses in particular may sponsor or adopt a MEP (which are referred to as Association Retirement Plans (“ARPs”) in certain Administration documents). DOL has already prepared a proposal that could be published as early as later this month. As the Administration is referring to MEPs as ARPs in certain documents, the proposal from the DOL may mirror in many respects the Association Health Plans regulation that was finalized earlier this year. Under that rule, the circumstances under which unrelated employers may join together to provide health insurance to their employees is fairly restrictive. Therefore, without a change from Congress, it is not anticipated that the proposal will allow open MEPs or very materially expand MEP availability.
MEP “one bad apple” rule. As noted, under the so-called one bad apple rule, if a single employer participating in a MEP violates the Internal Revenue Code’s retirement plan qualification rules, then the entire MEP may be disqualified, resulting in severe tax consequences for both the employers and participants. The EO directs Treasury to consider guidance that would provide relief from this result, so that only the employer violating the rules (and its participants) would be adversely affected. It is unclear if the Treasury relief will be as comprehensive or effective as the relief in RESA and the House bill.
Required minimum distributions (RMD) update. As a general rule, individuals must take a certain minimum annual distribution from their retirement plans and non-Roth IRAs after reaching age 70½. The amount that an individual is required to take is based on the joint life expectancy of that individual and his or her beneficiary according to life expectancy tables provided by the IRS.
The EO directs Treasury to consider updating the life expectancy tables in the RMD regulations to reflect the increase in average lifespans. Updating the tables is expected to result in lower annual RMDs, thereby allowing individuals to keep more money in their retirement accounts.
Retirement plan notices. Plan sponsors are required to provide a number of notices to plan participants at certain times and in conjunction with certain events. Under current rules, employers may not – as the default option – deliver the notices using electronic methods. The EO directs DOL to explore ways to reduce the cost of retirement plan notices for plan sponsors, such as through the broader use of electronic delivery. DOL is also instructed to consider ways to improve mandatory retirement plan notices by making them “more understandable and useful.”
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