On August 31, 2018, President Trump signed an Executive Order (the “Order”) that included three main provisions.
First, the Order aims at providing more employees with access to an employer-sponsored retirement plan. Specifically, the Order directs the Departments of Labor and Treasury to consider, within 180 days after the Order, issuing regulations or other guidance that would make it easier for businesses to join together to offer multiple employer plans (“MEPs”). Under current Department of Labor guidance, a purported single plan in which unrelated employers participate, where there is “no employment based common nexus…that is unrelated to the provision of [retirement plan] benefits” is deemed to be a collection of plans rather than a single plan. According to that position, each participating employer in such a plan must file its own Form 5500, have its own plan audit performed each year (if required), and maintain its own fidelity bond. In industry parlance, such an arrangement is called an “open” MEP. This is the type of MEP that the Order addresses.
It is widely believed that if “open” MEPs could be treated as one plan (with one Form 5500, audit, and fidelity bond, irrespective of the number of participating employers), then more small businesses would participate in a MEP instead of deciding not to offer a retirement plan to their employees. In this connection, the Order states that only 53 percent of employees at businesses with fewer than 100 employees have a workplace retirement plan available to them. The Order also cites a recent survey that “found that 71 percent of small- and medium-sized businesses that do not offer retirement plans were deterred from doing so by high costs.” In a MEP, participating employers would typically benefit from the economies of scale that larger businesses enjoy.
This part of the Order also directs the Treasury Department, within 180 days after the Order, to consider proposing guidance addressing the consequences if one or more employers that participate in a MEP fail to comply with any plan qualification requirements. Here, the Order is apparently seeking a repeal of the so-called “one bad apple” rule, under which even one MEP participating employer that violates any plan qualification requirement taints the entire plan.
Second, the Order directs the Departments of Labor and Treasury, within one year after the Order, to “complete a review of actions that could be taken…to make retirement plan disclosures required under ERISA and the Internal Revenue Code of 1986 more understandable and useful for participants and beneficiaries, while also reducing the costs and burdens they impose on employers and other plan fiduciaries responsible for their production and distribution.” That review must include an analysis “of the potential for broader use of electronic delivery as a way to improve the effectiveness of disclosures and to reduce their associated costs and burdens.” Given the costs of providing numerous required notices to plan participants, given studies reporting that very few participants read those notices, and given the penalties for failing to provide those notices, this part of the Order will likely be applauded by many retirement plan sponsors.
Third, the Order directs the Department of the Treasury, within 180 days after the Order, to review the rules on required minimum distributions from retirement plans. The Order’s goal is apparently to spark consideration of whether retirees could be allowed to keep more money in their 401(k) accounts and Individual Retirement Accounts for a longer period. That would potentially allow them to spread their retirement savings over a longer period of time than under current law.
Here is a link to the Order: https://www.federalregister.gov/documents/2018/09/06/2018-19514/strengthening-retirement-security-in-america