Retirement industry officials and political watchers are on the fence over the likely impact of President Donald Trump’s recent executive order opening the door to multiple-employer retirement plans and potential easing of required minimum distribution rules for retirement plans — with Ted Benna, the creator of 401(k)s, stating that the directive is “simply a play for votes.”
Trump signed an executive order Friday afternoon during a visit to Charlotte, North Carolina, under the banner Securing Americans’ Retirement, directing the Labor Department to ease rules on small-business MEPs and instructs the Treasury Department to review RMDs from 401(k)s and IRAs.
The president’s order “seeks to implement as much of the [Retirement Enhancement and Savings Act] as possible without congressional action,” Andy Friedman, principal at The Washington Update, told ThinkAdvisor on Tuesday. “Because only Congress has the power to change the tax and benefits law itself, the president’s ability to make changes through executive order is limited.”
Trump’s order on RMDs “can have some limited impact,” Friedman continued. “Treasury can see if there is a basis for modifying the actuarial tables, but a really meaningful impact requires Congress to change the substantive tax rules, which could have a revenue impact that makes passage difficult.”
Ed Mills, policy analyst for Raymond James, sees lawmakers acting as soon as this month to introduce legislation on retirement account reforms.
The bipartisan RESA bill, S. 2526, is being considered as a standalone bill by House Ways and Means Committee Chairman Kevin Brady, R-Texas, with Mills stating that congressional Republicans are “gearing up messaging efforts ahead of the fall midterm campaign cycle.”
RESA eases restrictions on MEPs, removes the traditional IRA contribution cap age of 70 ½, and increases access to annuities as part of 401(k) plans, Mills explains.
Introduction and passage of RESA, he added, “could speed up the timeline for certain changes to retirement accounts ahead of the six-month time frame prescribed in the president’s executive order.”
Ted Benna, known as the father of the 401(k), told ThinkAdvisor in an email message that he believes the potential changes in the RMD rules “will do nothing to improve retirement security.”
Treasury will consider updates to “mandatory withdrawals with updates to IRS life expectancy tables that have not been reviewed since 2002,” added Mills in his Washington Policy briefing on Tuesday.
Treasury’s review “could raise the age for required distributions and lower required amounts, allowing savings to be held in retirement accounts for a longer time period,” Mills added.
The executive order calls for an expansion of access to retirement accounts for small businesses by easing rules governing MEPs.
As it stands now, “the pooling of MEPs into a single plan is restricted to ‘related’ businesses — such as common interest in a trade group,” according to Mills.
Labor has been instructed to review of regulatory adjustments that would “expand MEP pooling to unrelated small businesses to allow them to take advantage of economies of scale.”
Friedman adds that “because multi-employer plans fit awkwardly, if at all, into the [Employee Retirement Income Security Act's] existing definitions and requirements, comprehensive rules allowing employers to form MEPs likely [require] congressional action.”
While the administration can implement “meaningful” changes to eliminate unnecessary administrative disclosure and compliance burdens on retirement plans, Friedman sees a long slog to reform.
“Because compliance requirements typically are regulatory, the administration does have the power to implement meaningful changes in this area,” he said. “However, the procedure to change regulations is lengthy and slow moving. Thus relief will not be forthcoming quickly.”
Benna argues that his guide, Set Up Your Own 401(k), gives small employers “better options” than traditional 401(k)s.
The alternatives set out in the guide “cost nothing to set up and operate and can cost participants as little as 5 basis points,” he said.
“The fact that small employers don’t have attractive alternatives is ‘false news,’” Benna added. “In far too many instances, small employers are sold 401(k)s when there are better alternatives. MEPs will only result in more instances of this.”
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