DOL Proposes Easing Access to Multiple Employer 401(k)s

Retirement plan initiatives to be put forward in 2017 budget

By Stephen Miller, CEBS January 27, 2016

updated on 2/10/2016

U.S. Secretary of Labor Tom Perez gave a preview of new retirement plan initiatives that President Barack Obama subsequently put forward in his 2017 budget proposal, released on Feb. 9. As outlined in the budget proposal, Perez said the administration will ask Congress to make it easier for different employers to pool together in a shared 401(k) plan, known as a multiple employer plan (MEP).

“Today, one out of three workers does not have access to a retirement savings plan, including half of workers at firms with fewer than 50 employees and more than three-quarters of part-time workers,” said Jeff Zients, director of Obama’s National Economic Council, who joined Perez during a Jan. 25 conference call with the media. “Fewer than 10 percent of workers without access to a workplace plan contribute to a retirement savings account,” such as an individual retirement account (IRA), he added.

MEPs on the Agenda

The Department of Labor (DOL) wants to work with Congress to make it easier for multiple employers to get together and offer open MEPs, “which will allow them to share administrative costs and to reduce some of their compliance burdens,” Perez said during the call. “These arrangements have the potential to be a low-cost, high-quality option for small businesses. Employers can set up these arrangements today, but current law and guidance don’t allow them to take advantage of all the administrative efficiencies, so we’re proposing to remove some of the obstacles while still retaining a robust set of consumer protections.”

Liberalizing access to MEPs would also “further efforts by nonprofits and other intermediaries to create plans for contractors and other self-employed people like freelancers and those who work in the on-demand sector, who don’t have access to a plan at work,” Perez said.

Currently, there must be “commonality” among employers for them to be able to join in a single plan, meaning that the employers must be in the same line of business, as with MEPs formed among auto dealerships. “What we’re trying to do is open it up so you might have small employers from different sectors in a particular region that want to get together to offer a plan, and there may be a local association that could facilitate that,” Perez said. “Our proposal would amend the federal law so the arrangement itself is treated as the retirement plan.”

But many plan sponsors have pointed to the the DOL’s own Advisory Opinion 2012-04A as the chief hindrance to broader adoption of MEPs. In that 2012 guidance, the DOL held that an open MEP in which there was no common bond between the employers (other than sharing a retirement plan service provider) would not be viewed as a single plan under the Employee Retirement Income Security Act (ERISA). Instead, an open MEP would be treated as a series of separate ERISA plans, one for each adopting employer. That would require all participating employers to file separate Forms 5500 and meet other compliance requirements of individual plan sponsors.

If the only thing standing in the way of employers without common bonds joining together in an open MEP is the 2012 DOL guidance, Perez was asked, why not just change the guidance rather than seeking statutory change?

“We want to increase access and reduce burdens, but at the same time we also want to make sure that there are sufficient consumer protections in place so that when a person is part of a plan, that he or she has confidence that the plan is going to be viable for him or her in the long run,” Perez responded. “I think it would be preferable for long-term sustainability for Congress to act, and that’s why our first line of involvement with this is going to be to try to work with Congress to codify these reforms.”

“Historically, the Department of Labor has been uncomfortable with MEPs and limited their use because of the risk that a plan participated in by many employers but operated by a third party might end up being supervised by no one at all,” noted Joshua Gotbaum, a former director of the Pension Benefit Guaranty Corp., in a Brookings Institution commentary. “Nonetheless, in recent years ‘open’ MEPs have been proposed by both Democrats and Republicans and in the last session of Congress, a bipartisan compromise almost made it into legislation. If the endorsement of the administration doesn’t taint it, Congress might decide, finally, to act.”

“Opening access to MEPs would allow more small businesses to finally begin offering retirement benefits,” said 401(k) advisor Chris Carosa, chief contributing editor to “Without them, the costs of running a plan combined with the fear of fiduciary liability makes offering retirement benefits too difficult a task for small companies.”

But Carosa also cautioned, “Even though we’re seeing legislative support on both sides of the aisle for open MEPs, the success of these plans will depend on the who’s running them,” he noted. “If they’re state-run, they could become logistical nightmares while also removing ERISA protections, which would be a major step backwards in consumer safeguarding.”

Automatic IRAs and Other Proposals

The administration will also ask Congress to pass a $100 million grant proposal to develop and test a federally run pilot program to provide retirement savings benefits for workers who are self-employed, have multiple employers, or have irregular or unpredictable work patterns, Perez said, without specifying what the pilot program might encompass. “We need to find out what works before we can take any of these ideas to scale, that’s why we hope Congress will fund this pilot and let us get started figuring out what works,” he said.

“The Affordable Care Act [allows] flexibility for people who don’t want to be tethered to one job. And this is exactly what we’re trying to do now with the retirement [proposals],” Perez said.

The administration is also continuing to promote key initiatives from prior budgets that have yet to move forward, including a proposal to triple the start-up credit to encourage small businesses to offer a retirement plan. “And we’re proposing automatic IRA legislation that would require every employer that does not offer retirement benefits to automatically enroll employees in an IRA,” said Perez.

The GOP Congress, however, has shown little inclination for passing new retirement programs at the federal level, which is why last November the DOL issued a proposal to allow individual states to launch state-run retirement plans for private-sector employees, and exempted these plans from many ERISA regulatory requirements.

That exemption raised the ire of private-sector retirement plan service providers, who argued they would be at a competitive disadvantage since their plans for small businesses must be ERISA compliant.

Nevertheless, “We’re proposing another pilot program to encourage more states to develop their own innovative approaches to increasing coverage,” said Perez. “These state programs hold tremendous potential to increase coverage, and that’s especially true for temporary workers, independent contractors and others who often don’t have any opportunities to save through their workplace.”

MEP Impediments to Be Addressed

“Unlike IRAs, MEPs offer employees the potential for an employer match and the opportunity to save for retirement at levels more appropriate for meaningful retirement savings ($18,000 per year, as compared to $5,500 per year for 2016), as well as access to institutionally priced investments,” Jamie Kalamarides, head of institutional investment solutions at Prudential Retirement, testified on Jan. 28 before the Senate Finance Committee.

Kalamarides noted several areas where legislative or regulatory action would be needed to expand access to MEPs for small businesses, including (as excerpted from his testimony):

Tax law. Section 413(c) of the Internal Revenue Code already recognizes plans maintained by more than one unrelated employer. However, it imposes a number of requirements on these plans as a condition of maintaining their tax-qualified status. As currently interpreted, some of these requirements, such as nondiscrimination rules, are applied on an employer-by-employer basis rather than a plan basis. This means that just one noncompliant employer can jeopardize the tax status of the entire plan, putting all employers at risk. This barrier is often referred to as the “one bad apple” rule.

Fiduciary liability. Some employers—particularly small employers—shy away from offering a plan because they are concerned about the responsibilities and liabilities they might assume under ERISA as plan fiduciaries. The uptick in retirement plan litigation relating to plan fees and other factors has only exacerbated their concerns.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.

Related Resource:

Building a 21st Century Retirement System, White House Fact Sheet, January 2016

Related News Stories:

Multiple Employer Plans: What’s in It for Participants? (Quite a Lot), Fiduciary Matters Blog (Russell Investments), February 2016

Obama Seeks to Expand 401(k) Use by Letting Employers Pool Plans,, January 2016

Obama to Push Retirement Plans In 2017 Budget, Officials Say, Pensions &Investments, January 2016

Related SHRM Articles:

Overcoming Retirement Plan Hurdles, SHRM Online Benefits, January 2016

DOL Encourages State-Run Retirement Programs, SHRM Online Benefits, December 2015

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