Congress Begins to Tackle Retirement

Congress this week is turning its attention to the country’s retirement security crisis in a way that many industry watchers say is long overdue.

Four pieces of proposed legislation all seek to address shortcomings in the existing system.

What they all have in common are provisions that would expand access to multiple employer plans for small and midsize businesses.

According to a 2012 Government Accountability Office report, only 14 percent of businesses with 100 or fewer employees sponsor a retirement plan.

Legislators on both side of the aisle see MEPs as vital to helping fill that void.

On Tuesday, the Senate Finance Committee heard expert testimony of six witnesses regarding overall retirement reform. Mutual fund pioneer and Vanguard founder John Bogle and Brian Reid, the chief economist at the Investment Co. Institute, are among those testifying.

Sen. Orin Hatch, R-Utah, the ranking committee member, was all ears.

Hatch’s proposed retirement reform legislation — the Secure Annuities for Employee Retirement Act — was one of the three pieces of legislation in the Senate calling for greater access to MEPs.

Multiple employer plans — not to be confused with “multiemployer plans,” which are collectively bargained defined benefit plans regulated by the Pension Benefit Guaranty Corp. — allow businesses to pool participants under one plan, in both defined benefit and defined contribution form. The plan sponsor – and, as a consequence, the primary fiduciary – is not the employer group, but the financial services firm that designs the plan.

A qualified MEP, according to its proponents, resolves many of the complications that deter smaller businesses from offering retirement plans.

With a MEP, a single Form 5500 is filed and one annual audit is performed, and those responsibilities fall to the plan sponsor — not the employers.

MEPs, in short, give employers the cost-efficiencies of larger plans. This can mean greater latitude in investment design, and greater negotiating power when it comes to hiring service providers. In the end, the cost of plan administration per participant is lower. And that means more of a participant’s contributions are invested, creating greater value in their 401(k).

But there is a catch — one legislators want addressed.

The Department of Labor recognizes two types of MEPs: “open” and “closed.”

A closed MEP is a consortium of businesses that constitute a “bona fide” group of employers — meaning the participating employers share a common industry or “nexus.”

Open MEPs are pooled plans by businesses that don’t share a common industry.

Because they don’t meet this standard, open MEPs don’t receive all of the benefits of pooling participants together. Namely, each participant in an open MEP has to file their own Form 5500, and conduct their own audit. Those costly and cumbersome responsibilities invariably expose individual employers of open MEPs to greater fiduciary risk as well — all things that discourage businesses from offering a plan in the first place.

All of the proposed reforms in Congress call for this regulation to be changed. Under the proposals, MEPs would be available to employers even if they don’t share a common nexus, and those MEPs would then have the full benefit of plans that do.

“You would definitely see an increase in the number of businesses sponsoring plans,” said Robert Alin, vice president and general counsel of Pentegra, a White Plains, New York-based retirement plan provider that sponsors open and closed MEPS.

In 2012, after the GAO published its study suggesting that regulatory inconsistencies, costs and liabilities were discouraging the vast majority of smaller employers from sponsoring plans, Alin and a team of lawyers representing the retirement services industry that was organized by the Groom Law Group met with the DOL.

Their plea? Remove the restriction that prohibits non-associated businesses from forming closed MEPs.