Editor’s note: This is the second of a two-part series in which retirement industry insiders share their expectations for the coming year. Part 1, on the DOL fiduciary rule, can be found here.
The champagne flutes from New Years Eve may be dry, but plenty of bubbling exuberance remains. In the view of several industry insiders we spoke with, multiple employer plans, state plans and financial education are areas in 2017 where that exuberance will be especially pronounced.
After building for many years, momentum for MEPs has accelerated. In 2014, the ERISA Advisory Council threw its support behind them, and in January 2016 the Obama administration said it wanted to extend MEPs access to the private sector. And the Retirement Enhancement and Savings Act of 2016 (RESA), a measure that would allow open MEPs for employees working for companies of all sizes and allow two or more unrelated private employers to adopt a defined contribution pooled employer plan (PEP), was put on the Senate calendar for a vote last November.
While that vote did not take place prior to the adjournment of the 114th Congress in December, Christopher Carosa, CTFA, chief contributing editor for FiduciaryNews.com, is unfazed. “Since it appears to have bipartisan support, we can expect some form of legislation to be passed that will permit the broad use of 401(k) MEPs,” says Carosa.
Jason Roberts, CEO of the Pension Resource Institute, agrees. “In the short-term, we are expecting some significant progress on open MEPs. Bipartisan interest in allowing unrelated employers to aggregate their purchasing power and streamline plan governance appears to remain strong.” And so does American Enterprise Institute Resident Scholar Andrew Biggs, remarking, “I think there’s a good chance for action on multiple employer DC plans, since that has some strong supporters in Congress.”
Carosa considers the arrival of MEPs to be good news not just for employees, but for plan sponsors, too. “For employees, 401(k) MEPs should usher in a new era of better service and lower-fee retirement plans. For plan sponsors, 401(k) MEPs will mean a significant decrease in fiduciary liability as well as a significant decrease in the amount of time spent administering the company's retirement plan.” And Carosa argues that will have further benefits, adding that “those personnel hours can now be redirected to the firm's profit centers, both increasing productivity and earnings,” and noting that could add to the nation’s GDP as well.
So what happens if RESA is enacted? Aaron Pottichen, Practice Leader, Retirement Services at CLS Partners, says “The ability to move forward with these with companies might not happen in 2017, but I believe if we look at the end of 2017, open MEPS will have progressed much further than they are right now.” And Roberts is even more optimistic: “The likelihood of open MEPs for the private sector may operate to help close the gap by allowing smaller employers access to high-quality, lower costs plans and the ability to shift some of their fiduciary duties to a sophisticated MEP sponsor.”
For his part, Carosa believes that, “Once this MEP legislation passes, the stated justification for the need for state-run retirement plans for private employees evaporates.”
The State of Things
Carosa may think that MEPs would bring state-run retirement plans into question, but he still calls them “a silver lining in the otherwise gloomy cloud facing the retirement industry.”
Carosa thinks that the Obama administration’s efforts to exempt states from ERISA protection for investors “puts the private industry at a competitive disadvantage.” He considers it unlikely that the Trump administration will follow the same approach, saying that, “They are likely to reintroduce ERISA protection for private employee retirement savers investing in state-run retirement plans.”
Roberts and Biggs expect that we’ll see more state activity. “State-run auto-IRA plans will continue to expand,” says Biggs. And Roberts argues that the DOL’s adoption of a rule allowing states to set up auto-IRA programs for the private sector will “make it difficult for Congress to overturn it.”
Back to School
Well, kind of. At least to the extent that financial education will continue to be big in 2017, building on 2016 momentum, Pottichen and Roberts expect. “We believe that this trend will continue regardless of new legislation or regulations,” says Roberts.
Why? “Significant data underscore the correlation of financial stress and employee productivity,” says Roberts. Moreover, “employers are increasingly looking for ways to help transition older workers into a timely and dignified retirement,” he notes.
Pottichen also considers financial education a way for employers to be of assistance. “For plan sponsors, I think they will have to continue to provide ancillary financial education programs to help their employees,” he says, adding, “Specifically, I think the integration of student loan repayments and health savings accounts with defined contribution plans will take a big step forward. There are already several providers for each of these topics that are moving forward with this.”
And Roberts cites another factor: the Department of Labor’s fiduciary rule, which he says “leaves open the door to providing investment education (i.e., interactive investment materials and model asset allocation portfolios) without triggering fiduciary status.” If advisors use these tools to help participants identify a diversified, age- or risk-appropriate portfolio, he says, “then more time can be spent helping participants with the bigger ‘rocks’ such as understanding retirement goals, gaps and the impact of increasing deferrals.”