Trump executive order boosts MEPs (PEP? ARP?)

[RatherBeGolfing]

NAPA Net article on the executive order

White House factsheet on the executive order

Executive Order on Strengthening Retirement Security in America

• Executive order directs DOL to "consider changes" to make it easier for businesses offer MEPs together.  Order uses the term Association Retirement Plans so I guess they are now MEP/PEP/ARPs...
• Executive order also directs Treasury to review rules on RMDs so that participants can keep more money in plans and IRAs longer
• Executive order also directs DOL to consider ways to improve notice requirements to reduce paperwork and admin burdens.  Can you say electronic disclosures?

[Dave Baker]

See also DOL Secretary Acosta's article, in today's Retirement Plans Bulletin:

https://benefitslink.com/newsletters/2018/2018_08_31_retirement_bulletin.html

(Folks are invited to subscribe to the free daily BenefitsLink Retirement Plans newsletter, including bulletins, use this URL:)

https://benefitslink.com/cgi-bin/secure/sub.cgi?l=9

News items from previous newsletters, about multiple employer plans (MEPs) or pooled employer plans (PEPs):

https://benefitslink.com/search/results.php?textQuery=%22multiple+employer+plans%22+OR+MEP+OR+MEPs+OR+%22Pooled+Employer+Plans%22+OR+PEP+OR+PEPs&datasource=MYDB&sort=2

[Suzanne Wynn, JD, LLM Tax]

Thank you Dave and RatherBeGolfing for this information. Like always, came to Benefitslink.com first to see if anyone had a copy of the Executive Order.

[Peter Gulia]

Rather than media releases describing the order, has anyone seen the text of the order?

 

[RatherBeGolfing]

2 hours ago, Fiduciary Guidance Counsel said:

Rather than media releases describing the order, has anyone seen the text of the order?

 

Executive Order on Strengthening Retirement Security in America

By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1.  Policy.  It shall be the policy of the Federal Government to expand access to workplace retirement plans for American workers.  According to the Bureau of Labor Statistics, 23 percent of all private-sector, full-time workers lack access to a workplace retirement plan.  That percentage increases to 34 percent when part-time workers are taken into account.  Small businesses are less likely to offer retirement benefits.  In 2017, approximately 89 percent of workers at private-sector establishments with 500 or more workers were offered a retirement plan compared to only 53 percent for workers at private-sector establishments with fewer than 100 workers.  Enhancing workplace retirement plan coverage is critical to ensuring that American workers will be financially prepared to retire.

Regulatory burdens and complexity can be costly and discourage employers, especially small businesses, from offering workplace retirement plans to their employees.  Businesses are sensitive to the overall expense of setting up such plans.  A recent survey by the Pew Charitable Trusts found that 71 percent of small- and medium-sized businesses that do not offer retirement plans were deterred from doing so by high costs; 37 percent cited high costs as their main reason for not offering such a plan.  Federal agencies should revise or eliminate rules and regulations that impose unnecessary costs and burdens on businesses, especially small businesses, and that hinder formation of workplace retirement plans.

Expanding access to multiple employer plans (MEPs), under which employees of different private-sector employers may participate in a single retirement plan, is an efficient way to reduce administrative costs of retirement plan establishment and maintenance and would encourage more plan formation and broader availability of workplace retirement plans, especially among small employers.

Similarly, reducing the number and complexity of employee benefit plan notices and disclosures currently required would ease regulatory burdens.  The costs and potential liabilities for employers and plan fiduciaries of complying with existing disclosure requirements may discourage plan formation or maintenance.  Improving the effectiveness of required notices and disclosures and reducing their cost to employers promote retirement security by expanding access to workplace retirement plans.

Outdated distribution mandates may also reduce plan effectiveness by forcing retirees to make excessively large withdrawals from their accounts — potentially leaving them with insufficient savings in their later years.

In light of the foregoing it shall, therefore, be the policy of the Federal Government to address these problems and promote retirement security for America’s workers.

Sec. 2.  Improving Retirement Security.  (a)  Expanding access to Multiple Employer Plans and Other Retirement Plan Options.

(i)   The Secretary of Labor shall examine policies that would:

(1)  clarify and expand the circumstances under which United States employers, especially small and mid-sized businesses, may sponsor or adopt a MEP as a workplace retirement option for their employees, subject to appropriate safeguards; and

(2)  increase retirement security for part-time workers, sole proprietors, working owners, and other entrepreneurial workers with non-traditional employer-employee relationships by expanding their access to workplace retirement plans, including MEPs.

(ii)  Within 180 days of the date of this order, the Secretary of Labor shall consider, consistent with applicable law and the policy set forth in section 1 of this order, whether to issue a notice of proposed rulemaking, other guidance, or both, that would clarify when a group or association of employers or other appropriate business or organization could be an “employer” within the meaning of section 3(5) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1002(5).

(b)  Qualification Requirements for Multiple Employer Plans.  Within 180 days of the date of this order, the Secretary of the Treasury shall consider proposing amendments to regulations or other guidance, consistent with applicable law and the policy set forth in section 1 of this order, regarding the circumstances under which a MEP may satisfy the tax qualification requirements set forth in the Internal Revenue Code of 1986, including the consequences if one or more employers that sponsored or adopted the plan fails to take one or more actions necessary to meet those requirements.  The Secretary of the Treasury shall consult with the Secretary of Labor in advance of issuing any such proposed guidance, and the Secretary of Labor shall take steps to facilitate the implementation of any guidance, as appropriate and consistent with applicable law.

(c)  Improving the Effectiveness of and Reducing the Cost of Furnishing Required Notices and Disclosures.  Within 1 year of the date of this order, the Secretary of Labor shall, in consultation with the Secretary of the Treasury, complete a review of actions that could be taken through regulation or guidance, or both, 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.  This review shall include an exploration 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.  If the Secretary of Labor finds that action should be taken, the Secretary shall, in consultation with the Secretary of the Treasury, consider proposing appropriate regulations or guidance, consistent with applicable law and the policy set forth in section 1 of this order.

(d)  Updating Life Expectancy and Distribution Period Tables for Purposes of Required Minimum Distribution Rules.  Within 180 days of the date of this order, the Secretary of the Treasury shall, consistent with applicable law and the policy set forth in section 1 of this order, examine the life expectancy and distribution period tables in the regulations on required minimum distributions from retirement plans (67 Fed. Reg. 18988) and determine whether they should be updated to reflect current mortality data and whether such updates should be made annually or on another periodic basis.

Sec. 3.  General Provisions.  (a)  Nothing in this order shall be construed to impair or otherwise affect:

(i)   the authority granted by law to an executive department or agency, or the head thereof; or

(ii)  the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(b)  This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c)  This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

DONALD J. TRUMP

THE WHITE HOUSE,
August 31, 2018.

[Peter Gulia]

Thank you!

 

[RatherBeGolfing]

I like the EO a lot more than I thought I would.  We have fought the DOL for common sense regs on electronic notices and disclosures for many years, and this seems like it will finally make something happen.

Updating the RMD rules and tables to reflect retirement security needs over government tax collection also makes a lot of sense.  

I'm ok with expanding MEPs, as long as it is done in a responsible way.  It sounds like those of us involved in government affairs will have a busy winter/spring with the 180 day clock in the EO

I was a little disappointed that the EO did not include anything on missing and recalcitrant participants.  

MEP promoters of BL, did you get what you expected out of the EO?  

[Bird]

My 2 cents...

I don't see the MEP thing truly increasing retirement plan creation.  If somebody wants a plan now, I can find or create something pretty good.  If they don't want a plan, I doubt whatever savings are available through a MEP are going to change their mind.

The RMD thing drives me up a wall!  First, changing the table now and then is not going to make a significant difference, and is just one more thing to maintain and update for us.  Second, if you don't want the money then, by definition, you don't need it for your retirement security.  Third, if you don't buy the first two arguments, this overrides everything - YOU DON'T HAVE TO SPEND IT!  You just have to be taxed on it.  What is the big friggin' deal here?!  You got a benefit from deferred taxation, and the RULES OF THE GAME have always been that you have to be taxed on it, later.  This is just more conservative nonsense to minimize/avoid taxes (while we are looking at a trillion dollar deficit) couched in the image of helping poor Grandma, who is being "forced" to take money out of her retirement plan.  It disgusts me, and I'm not exaggerating.

[Peter Gulia]

What about changing the tax Code so, for an individual-account (defined-contribution) retirement plan or an IRA, no minimum-distribution rule applies until an account is more than $250,000?

And for those with bigger accounts, really apply and enforce the law?

 

[Bird]

23 minutes ago, Fiduciary Guidance Counsel said:

What about changing the tax Code so, for an individual-account (defined-contribution) retirement plan or an IRA, no minimum-distribution rule applies until an account is more than $250,000?

Shrug.  An unnecessary complication, IMO.  Then you'll have people with $251K griping and asking for it to be raised to $300K or whatever.  

[Peter Gulia]

Has anyone experienced a situation in which the IRS detected (without a taxpayer, employer, or custodian volunteering) not that a participant or IRA holder failed to begin a distribution but rather that a year's amount was less than the required minimum?

[RatherBeGolfing]

22 minutes ago, Fiduciary Guidance Counsel said:

Has anyone experienced a situation in which the IRS detected (without a taxpayer, employer, or custodian volunteering) not that a participant or IRA holder failed to begin a distribution but rather that a year's amount was less than the required minimum?

Like during an audit?

[Peter Gulia]

During an examination, or by information-matching.

Because examinations is insignificant coverage, I'm especially interested in learning about whether the IRS detects minimum-distribution failures using data reported to the IRS.

[jpod]

While I not a big fan of many of the recent tax changes or to say the least the state of affairs in DC these days, I think the time has come to increase the required beginning date.  When the 70-1/2 concept first made it into the law (1962?), that was WAY beyond the average retirement age.  Now, not so much.  Unfortunately I don't see that as one of the items which the EO touches on, nor could it.  

[shERPA]

Some common sense on notices would be good.

MEPs - the commonality stuff is DOL interpretation, IIRC the bad apple rule is a treasury reg, not code, so these can be changed by the agencies.  Whether or not it moves the coverage needle significantly, we'll have to see. IMO the existing rules are unnecessarily restrictive and not necessarily consistent with the underlying law.

RMDs - the requirements are in the code.  Other than tweaking the tables don't know what IRS can do.  The individual account method is already pretty back loaded because there is no earnings factor built in, just account balance divided by life expectancy.    Upping the RBD is probably a good idea now, but  will need Congress to act. 

 

[ACK]

As far as the RMD rules are concerned, they are WAY too complicated.  It is easy enough if someone is 70 1/2 and has terminated and starts the RMD.  The calculation is pretty simple.  But the complexities that come into play with deceased participant accounts - how to handle the RMD if the person died before starting the payment vs. if they died after the payment had started; how to calculate the payment if the beneficiary is a spouse vs. if the beneficiary is not a spouse; whether or not the plan uses the 5-year rule for distribution, etc. etc. I would love to see the rules simplified.  They are overly complicated for what is trying to be achieved.  But it looks like the EO is just addressing the tables used, not the complexities of the calculation rules.