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Expect Executive Order, Legislation to Drive Activity in 2019

Regulatory and legislative changes in the coming months will be spurred by President Trump’s Aug. 31 executive order and several retirement reform bills in Congress, in the view of the American Retirement Association’s Government Affairs staff.

In the regulatory realm, in fact, the action will begin Oct. 22, with the expected issuance of a proposed regulation from the Department of Labor on multiple employer plans (MEPs), according to Craig Hoffman, the ARA’s General Counsel.

We learned that OMB [the Office of Management and Budget] has returned it to the Department of Labor,” Hoffman said at the Oct. 21 “Washington Update” opening session of the 2018 ASPPA Annual Conference held at National Harbor, MD. It is likely there will be a 60-day period for public comment, Hoffman added.

Interestingly, the president took an interest in MEPs” and in his Aug. 31 executive order instructed the DOL revisit its 2012 view on MEPs and to take a fresh look at the “one bad apple” rule as applied to them, Hoffman said. The DOL had said in an advisory opinion it issued in 2012 that most open MEPs would not actually be treated as a MEP but instead would be treated as separate, individual plans under ERISA and that each employer participating in a MEP is an ERISA fiduciary.

The executive order directed the DOL to “clarify and expand the circumstances under which the United States employers, especially small and mid-sized businesses, may sponsor or adopt a MEP as a workplace retirement option for their employees, subject to appropriate safeguard.” Accordingly, on Sept. 20 the DOL submitted a proposed regulation to OMB for review.

Disclosures

The Aug. 31 executive order also directed the DOL and the Treasury Department to review retirement plan disclosures by Aug. 31, 2019. Hoffman noted that on Sept. 25, the ARA and the Investment Company Institute submitted comments with initial data regarding the effectiveness and improved engagement that can be achieved through electronic disclosure as opposed to disclosures made on paper. “Clearly there have been great advances in engagement with participants” through electronic disclosure, Hoffman remarked.

RMDs

The executive order also addressed required minimum distributions (RMDs). It directed the Treasury, within 180 days, to:


  • examine life expectancy and distribution period tables in final RMD regs;

  • determine whether update is needed to reflect current mortality data; and

  • determine whether updates should be made annually or on other basis.


The idea is to update the mortality data to reflect more current conditions,” said Marty Pippins, ARA Director of Regulatory Policy and ACOPA Executive Director. Generally, longer life expectancies in the mortality table will result in smaller RMDs. “This would allow more money to be left in retirement plans,” he added.

The ARA supported this change in an Oct 5 comment letter to the Treasury and IRS. Among the recommendations the ARA made was that the Treasury and IRS finalize changes at least six months before the beginning of the calendar year in which the change will be effective, and that no changes be effective in 2019. And, the letter noted, if changes are to be effective for calendar year 2020, regulations or guidance will need to be finalized by July 1, 2019. In addition, the ARA recommended that in the future, adjustments be made on a five-year basis, not annually.

Capitol Hill Update

Andrew Remo, ARA’s Director of Legislative Affairs, reported to attendees that there has been “a lot of action, surprisingly so, this year” and that legislation has been put before both chambers of Congress. Particularly important are the Retirement Enhancement and Savings Act (RESA), introduced in the Senate, and the Family Savings Act (FSA) introduced in the House of Representatives.

There are provisions common to both bills, said Remo, including:


  • Pooled Employer Plans (PEPs)

  • Extension of due date for adopting plans

  • Safe harbor 401k improvements

  • Prohibition on plan loans through credit cards

  • Annuity purchase safe harbor

  • Lifetime income portability

  • 403(b) custodial account termination

  • Church-controlled organization retirement income account rules fix

  • Repeal of maximum age for traditional IRA contributions

  • Allowing fellowship stipends to be contributed to IRAs

  • Nondiscrimination testing relief for DB plans closed to new entrants


But there also are provisions unique to both bills, Remo noted. For instance, the FSA also calls for the creation of Universal Savings Accounts, which would have a $2,500 contribution limit and would have tax treatment similar to Roths, and which ARA Director Retirement Policy Doug Fisher characterized as “really just a tax-free savings account.” It also would allow hardship distributions of up to $7,500 from retirement accounts to help cover expenses related to child birth and adoption.

For its part, among the provisions unique to RESA are those that would remove the automatic enrollment cap for QACA; a tax credits for small employers that adopt plans and for auto-enrollment; allowing combined annual reports for plans using the same trustee and investments; and lifetime income disclosure, which Remo said has “a lot of champions in the Senate” even though it is “probably the most controversial provision.”

Panelists noted that Rep. Richard Neal (D-MA) has introduced legislation proposing to require that all employers which have been in business for at least three years and have more than 10 employees to have a retirement plan, although it would not require employer contributions to 401(k) plans. In addition, Neal’s bill would require auto-enrollment and a starting contribution level of 6% of compensation, automatically escalating by 1% per year to 10%; and would require that all employees over the age of 21 be covered, including new and part-time workers working for at least three months.

The bill includes a mandate, but “merely a mandate to offer this option,” said Hoffman, adding that whether employees avail themselves of the option is up to them. “This is an important distinction,” he said.

Should the bill not be passed and then enacted before this session of Congress ends, Fisher and Hoffman indicated that said that it will be reintroduced in the next session. “There is no doubt that this will be back. Without question, it will be reintroduced in the new Congress,” remarked Hoffman.

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