Small employers face a dilemma when it comes to employee retirement plans. How can they offer cost-effective options that limit fiduciary responsibility for which they are ill prepared? Multiple employer plans, or MEPs, may provide a solution. However, government regulation and tax laws have discouraged many from even attempting to go this route.
On August 31, 2018, President Donald Trump issued an executive order that may simplify the process while making retirement plans available to millions of Americans facing a gap in retirement coverage.
Retirement Plans by the Numbers
Before looking at how the executive order might change the retirement plan landscape, let’s look at some important details about the current state of affairs.
- Employee status makes a difference. About 23 percent of private-sector, full-time workers and 34 percent of part-timers do not have access to a plan.
- Company size matters also. Around 89 percent of private-sector companies with 500+ workers offer workplace retirement plans. That number drops to 53 percent for companies with 100 employees or less.
- Costs are discouraging. Up to 71 percent of small- to medium-size companies cite high costs as a reason for not offering retirement plans. In fact, cost was the main deterrent for 37 percent of those companies.
The gaps in retirement coverage seem to occur most between full-time and part-time employees and between large companies and small.
Proposed Changes to Retirement Planning
Section 1. Policy
. The federal government proposes greater access to workplace retirement plans, including MEPs, to American workers
as a matter of policy
. Employers’ reasons for not offering retirement plans often relate to the high costs involved with their creation and management. The intention of the executive order is to revise or eliminate regulations that increase those costs.
Section 2. Improving Retirement Security.
The President directed the Secretary of Labor to investigate methods of expanding access to MEPs and increasing retirement security for non-traditional employees. The Secretary of the Treasury was directed to make proposals for changes in IRS tax qualification requirements. The Secretaries also were directed to work together as needed. Disclosure requirements and required minimum distributions are also to be addressed, as well as reducing costs of MEP administration.
But what does this mean for employers, non-traditional employees, and plan administrators?
The Future of MEPs
With this administration’s focus on increasing access to MEPs, there’s a potential for any or all of the following changes:
- “One bad apple” rule. This rule, imposed by the previous administration, states that the disqualification of a single member disqualifies the entire MEP. The Department of the Treasury may eliminate or alter this rule in response to President Trump’s executive order.
- Commonality requirements. Currently, employer members of a MEP must be ‘related’ in some way. For example, a MEP might be established exclusively for members of a carpenter’s guild or for small real estate agencies. Commonality requirements could be relaxed in response to President Trump’s executive order.
- Less Regulation. Less regulation may encourage employers to establish new retirement plans for their workers.
- Lower costs. Small employers tend to avoid MEPs due to high administration and investment management costs. Reducing the expense of joining, creating, and managing a MEP may expand accessibility to small business owners and non-traditional employees like independent contractors and sole proprietors.
It’s no secret that many Americans are not ready for retirement. Reducing costs and regulation on MEPs may open new avenues of retirement savings for many of them.
A Thoughtful Look at Retirement Security
Whether the executive order and attention from Labor and Treasury will bring about real change remains to be seen. However, the increased attention to retirement security may, in the long term, benefit American workers, employers, small business owners, plan advisors, and plan administrators.
At
Hall Benefits Law
, we work extensively with employee benefit plans, both before and after plans are established. Please call 678-439-6236 to discuss your concerns with an experienced attorney. Our
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