Employers that join association retirement plans could, theoretically, try to discriminate against employees who look as if they’ll live a long time.
But, in practice, federal officials say, lifespan-based discrimination might not be a big issue for multiple-employer association plans.
(Related: What If Your Clients Live to 100?)
Officials at the Employee Benefits Security Administration (EBSA), an arm of the U.S. Department of Labor (DOL), raise, and dismiss, concerns about lifespan-based discrimination in their new final regulations for association retirement plans.
The Association Retirement Plan Regulation
Some policymakers hope that letting small employers team up to offer defined contribution retirement plans could cut the cost of providing retirement benefits, and increase workers’ access to retirement benefits.
Congress is debating bills that could encourage use of “multiple-employer plans,” or MEPs. EBSA and DOL are trying to get a head start on encouraging use of MEPs, by letting the small employers in a MEP act as if they were one big employer, for some purposes.
EBSA and DOL published a draft version of the MEP employer definition regulation in October.
(Related: DOL Releases Proposed Rule on MEPs)
Individuals and organizations submitted 57 comments on the draft. Most supported the general goal of supporting use of multiple-employer plans.
EBSA and DOL are preparing to publish the new, final regulation in the Federal Register Wednesday. The regulation is set to take effect 60 days after the publication date.
Association Retirement Plans v. Association Health Plans
The DOL has already started implementing a new final regulation that lets small employers team up to act as one employer when they’re buying health benefits, through an association health plan (AHP).
The AHP regulation includes many provisions that prohibit discrimination based on employees’ health status, or employees’ or employers’ claims.
EBSA officials say, in a footnote in the introduction of the new association retirement plan regulation, they decided against putting similar anti-discrimination provisions in the association retirement plan regulation.
“Defined contribution retirement plans do not underwrite health risk,” officials say.
Small employers don’t face the same kind of health-risk-related price pressure in the retirement plan market that they face in the health plan market, officials say.
The Annuitization Exception
But officials say there could be one corner of the retirement plan market where people’s health could make a difference: efforts to offer lifetime income features, through mechanisms such as immediate annuities or deferred annuities.
Adding lifetime income annuities to a plan could “potentially implicate some degree of longevity risk,” officials say.
But DOL does not believe the possibility that longevity risk could lurk in some retirement plan features warrants the addition of nondiscrimination provisions to the new association retirement plan regulations, officials say.
Even if use of annuitization features could lead to discrimination, the Internal Revenue Code and other federal laws already address any relevant nondiscrimination concerns, officials say.
The Open MEP Request for Comments
The new association retirement plan regulation requires the sponsor to be a bona fide organization that has an independent life of its own.
Some commenters asked DOL to let financial services companies create “open MEPs,” or MEPs designed for small employers that simply want to offer joint retirement plans, not to join a new association for other purposes.
EBSA has posted a formal request for information about the open MEP concept.
The request for comments is set to appear in the Federal Register Wednesday.
Comments on the open MEP concept will be due 90 days after the official notice publication date.
A copy of the final association retirement plan rule is available here.
The request for comments on the open MEP concept is available here.
— Read Reinsurers Have Traded $60 Billion in Longevity Risk: Rating Agency, on ThinkAdvisor.