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 midsized businesses.
According to a 2012 Government Accountability Office report, only 14 percent of businesses with 100 or fewer employees sponsor a retirement plan.
Also read: Can this government bailout be avoided?
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.
The DOL didn’t budge.
“I believe the DOL takes its responsibility to protect participants very seriously,” Alin explained. “They’re worried about abuse. And they’re worried about fraud.”
And Alin says with some good reason.
His theory on the DOL’s reluctance to make MEPs less restrictive stems from the regulator’s experience with multiple employer welfare associations.
According to the DOL’s website, MEWAs are pooled health plans between unrelated employers — they do not share an industry or nexus.
MEWAs are regulated by both the DOL and state insurance agencies. It’s that absence of uniform oversight that opened the door for fraud.
“The Department has devoted significant resources to investigating and litigating issues connected with abusive MEWAs created by unscrupulous promoters who sell the promise of inexpensive health benefit insurance, but default on their obligations,” the DOL says in a fact sheet on its website.
So, according to Alin’s theory, the DOL’s reluctance to relax the regulation of MEP retirement plans is related to the fraud seen in MEWAs. How much Congress is able to accomplish on this question remains unclear.
In his opening statement at the hearing on retirement policy, Hatch said the Finance Committee historically has been responsible for directing retirement policy and that the effort has “always been bipartisan.”
“I believe this tradition of bipartisanship on these issues can and will continue,” he said.
He sited recent bipartisan efforts on the pension smoothing provision of the Highway Bill, and a mutual interest by both parties to address the systemic funding issues plaguing collectively bargained multiemployer plans.
Then, Hatch’s comments became a bit more foreboding.
“Lately, however, I’ve become concerned that there is a political strategy by some in Congress to turn pension policy into just another partisan battleground.
“They would turn retirement policy into another front in the class warfare that consumes so much energy on some of the other committees in Congress,” warned Hatch.
But with legislators from both parties, in both chambers of Congress, calling for changes to how multiple employer plans are regulated, this time could be different.
On the other hand, this is an election year, with the potential to shift the balance of power in the Senate, so the chances of anything of substance happening before next year are slim at best.