Open MEPs or not? Let the legislative sausage-making begin

Bipartisan legislation that would make considerable policy and technical changes to retirement plan administration is scheduled to be marked up by the House Ways and Means Committee on Tuesday.

The Setting Every Community up for Retirement Enhancement Act of 2019, or SECURE Act, tracks with much of the Retirement Enhancement and Savings Act, another piece of bipartisan, bicameral legislation that proponents have billed as a game-changer for retirement savings since it unanimously passed out of the Senate Finance Committee in 2016.

But the SECURE Act deviates from RESA in one vital way: It does not include language on Open Multiple Employer Plans, which would allow unaffiliated small employers to band assets and purchasing power under one defined contribution plan.

Or does it? While the words “Open MEPs” don’t appear in the text of the SECURE Act, an official summary of section 202 of the bill reads as such:

The legislation directs the IRS and DOL to effectuate the filing of a consolidated Form 5500 for similar plans. Plans eligible for consolidated filing must be defined contribution plans, with the same trustee, the same named fiduciary (or named fiduciaries) under ERISA, and the same administrator, using the same plan year, and providing the same investments or investment options to participants and beneficiaries. The change will reduce aggregate administrative costs, making it easier for small employers to sponsor a retirement plan and thus improving retirement savings.

“What this language is explaining is an Open MEP,” said Troy Tisue, president of TAG Resources, a Knoxville, TN-based fiduciary provider of multiple employer plans.

But Michael Weddell, director, retirement, at Willis Towers Watson, suggested the language in the SECURE Act is more limiting than Open MEPs.

“It’s a similar mechanism,” said Weddell, referring to the single Form 5500 that pooled employers could file under the SECURE Act and the Open MEP provision of RESA.

But the SECURE Act stops short of addressing the current “nexus” requirement in Labor Department guidance on multiple employer plans. Under it, employers need a shared commonality, such as participation in a trade group, to pool assets and qualify as one retirement plan.

“If section 202 (of the SECURE Act) became law, it would allow one Form 5500 to be filed for a collection of plans. For example, a collection of school districts might aggregate their purchasing power,” explained Weddell.

Open MEPs not a panacea

The distinction, however technical, is important.

Lack of retirement plan sponsorship among smaller employers is commonly cited as a barrier to the country’s overall retirement security. According to the Bureau of Labor Statistics, only half of Americans who work for an employer with fewer than 50 employees have access to a workplace savings plan.

Open MEPs could address that gap by giving smaller employers access to more affordable plans, while shifting much of their fiduciary liability to a qualified third-party fiduciary provider. But even industry supporters of Open MEPs caution that it would not be a panacea.

Last year, the Labor Department proposed a rule that stopped short of fully removing the existing commonality requirement to form MEPs. Under the proposal, unaffiliated employers could form MEPs if they reside in the same municipality or state.

It also prohibits retirement plan service providers from sponsoring MEPs. Chambers of Commerce and Professional Employer Organizations could sponsor the plans.

Labor’s proposal was met with wide criticism from the retirement services industry for being too narrow. It’s been more than three months since Labor closed its comment period for the proposal. Under one common assumption, regulators are waiting for Congress to weigh in before issuing final regulations.

Open MEP amendment expected during mark up

The divergence between the SECURE Act and RESA’s treatment of Open MEPs may prove to be academic.

As the SECURE Act was introduced last week, separate bipartisan legislation was also reintroduced in the House.

The Retirement Security for American Workers Act, introduced by Rep. Ron Kind, D-WI, and Rep. Vern Buchanan, R-FL, removes the existing commonality requirement and paves the way for Open MEPs.

Industry insiders expect that bill will be offered as an amendment to the SECURE Act during Tuesday’s markup hearing.

“I understand they’ll combined into one measure,” said Geoff Manville, principal, government relations at Mercer.

Kind and Buchanan’s Open MEP bill would amend the Employee Retirement Income Security Act by saying no common interest is required for employers to pool assets in MEPs.

And unlike Labor’s proposal, the bill does not limit retirement plan providers from sponsoring MEPs, though any provider would have to register with the Labor Department before entering the market. Providers would be fiduciaries to the plans, and a single employer that fails to meet withholding or remittance requirements would be dealt with individually, and would not disqualify other compliant employers in a pooled plan from tax-deferred status.

The bill also instructs the Labor Department to create model plan language that providers and employers could follow to assure compliance.

It’s unclear why Open MEP language was excluded in the SECURE Act, which is co-sponsored by Rep. Richard Neal, D-MA, Chairman of the Ways and Means Committee, and Rep. Kevin Brady, R-TX, the ranking member.

Chair Neal has been a champion of the idea in the past; he was a co-sponsor of the Retirement Security for American Workers Act in previous congressional sessions.

If retirement legislation is ultimately moved to floor vote in the House—with or without an Open MEP provision—it will then have to be harmonized with the Republican controlled Senate’s vision for retirement reform.

There is bipartisan support for Open MEPs in the upper chamber. The Retirement Security Act of 2019, which removes the commonality requirement for pooled plans, was introduced by Sen. Susan Collins, R-ME, Chairwoman of the Senate Aging Committee, and Sen. Maggie Hassan, D-NH, in February.