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Now that the SECURE Act has passed out of the House and Senate and will become law once President Trump signs next year's spending package tomorrow, regulators will be called on to facilitate implementation of the retirement bill's many provisions.
One of the most critical provisions of the law—the Open Multiple Employer Plan provision—will allow unaffiliated employers to band workers under one defined contribution plan, creating economies of scale and offloading much of the fiduciary liability that sponsors of retirement plans carry today.
Open MEPs have the potential to revolutionize workplace retirement plans, not only for the small employers that currently don't offer plans, but for existing plans as well, says Melissa Kahn, managing director at State Street Global Advisors.
"The big immediate question is how can plan providers participate," said Kahn. "The Labor Department is going to have to come up with some guidance on that."
This fall, Labor implemented a regulation on pooled retirement plans that did not include Open MEPs.
In its regulation, Labor prohibited money managers, insurance companies, recordkeepers, and advisors from sponsoring MEPs.
Under the SECURE Act, those entities and not prohibited from sponsoring Open MEPs.
But that doesn't mean that they legally can—at least not without further clarification.
Under ERISA, fiduciaries to retirement plans are forbidden from self-dealing. The question under SECURE's vision for Open MEPs is whether a money manager like State Street can be a MEP sponsor, or if a recordkeeper that also has proprietary mutual funds or annuities can legally sponsor a pooled plan.
The Open MEP provision of SECURE is not slated to go into affect until January of 2021. Kahn says that will give the Labor Department all the time it needs to propose and finalize the necessary guidance.
"I personally think Labor is already working on drafting new MEP regulations, or exemptions for service providers," said Kahn, who referenced a request for information on Open MEPs Labor issued when it finalized its pooled plan rule.
Kahn thinks a proposal from Labor could come as early as the first quarter of next year. Presuming what it will look like is speculative. She does not expect regulators to put cost limitations on Open MEPs, but they could require a third-party fiduciary to oversee the fiduciary sponsors of Open MEPs.
|Will Open MEPs transform today's 401(k) market?
"SECURE is positioned in a way that is focused on small employers," said Kahn, noting a $5,000 tax credit SECURE creates for employers to start sponsoring retirement plans that, in accord with the economies of scale achieved through polling plans, could move the needle.
"It creates an opportunity for those employers that have not been able to afford sponsoring a plan—I think you will see advisers and MEP sponsors going to those employers and saying you can now afford this," she said.
As Open MEPs have been floated over the years through legislative and regulatory channels, some have speculated that their impact would be more on the existing plan market, and not necessarily on persuading small employers to start sponsoring a plan.
In other words, employers of all sizes that now sponsor plans, and carry considerable fiduciary liability in an era of aggressive ERISA litigation, may find Open MEPs a more appealing option.
Kahn acknowledges that possibility, and points to regulations in the United Kingdom that required retirement plan sponsorship for employers and created master trusts, which some larger employers are gravitating to.
"There are a lot of unknowns and none of us has a crystal ball. We will have a better idea of which direction the market may take after Labor releases regulations. But we live in such a litigious society—unlike any other developed economy. Employers want to be funders and facilitators of retirement benefits, but they don't want the liability," explained Kahn.
"If they can offload that liability, they will," she added.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
