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Risking Retirement

ERISA was enacted to provide national protections for participants in employer-sponsored retirement plans – but proposed legislation would undermine those protections.

A bill introduced in the Senate in July would create a new type of “open” multiple employer plan (MEP), an employee benefit plan that can be maintained as a single plan in which two or more unrelated employers participate. This is a concept that has received bipartisan support on Capitol Hill, and of which the American Retirement Association has been largely supportive, viewing it as a device that could broaden coverage by encouraging employers to offer a plan and provide a more cost-effective way to serve plans in the small market.

Unfortunately, the ironically named Small Business Employees Retirement Enhancement Act would eliminate the fiduciary role of small employers in considering cost, competency, financial stability or the likelihood of fraud in choosing a pooled plan service provider or the plan’s investments under the bill.

It’s hard to imagine how the elimination of the employer oversight that has been part and parcel of the employer-sponsored retirement system would be an “enhancement” for small business workers, who would, under such a scheme, be left at risk for excessive fees, bad investments and potential fraud. In fact, a MEP provider in Idaho is serving time in federal prison for crimes that had nothing to do with the fees that were charged. Significantly, it wasn’t a regulator that detected those criminal acts, and it sure wasn’t the MEP he was running — it was a plan sponsor.

Doubtless, those looking to insulate the plan sponsor from fiduciary liability are focused on removing what they think — or have been told — is a barrier to plan adoption, and thus see the elimination of that role as a step on the path to increasing retirement plan coverage. And doubtless there are MEP providers willing to assume the “transfer” of that responsibility.

Indeed, the bills’ sponsors cite “fiduciary risk” as a major reason employers do not offer a plan. There’s just one problem: That doesn’t seem to be the case when you actually survey employers who aren’t offering a plan as to why that’s the case. A 2017 survey of employers by Pew Charitable Trusts found that 37% cited “too expensive to set up” as a “main” reason, and 71% as a reason. A lack of resources to administer the plan was cited by 22% as a main reason, and 63% as a reason. “Employees not interested” was a reason for half the respondents, and a main reason for 17%. Nearly a quarter (22%) noted they hadn’t even thought about it. Concerns about fiduciary liability? Not even on the list.

Click here to view other commentary by Brian Graff.

One place where fiduciary concerns were mentioned was a 2015 survey by the Transamerica Center for Retirement Studies. However, that survey found that concerns about fiduciary liability was cited by just 13% of employers — the very last item on their list of reasons (except for “other”). It was dwarfed by reasons like “company is not large enough” (58%), cost concerns (50%), employees not interested (32%), company/management not interested (27%), and administrative complexity (19%).

In sum, the issues that are holding employers back — and that have long held employers back — don’t have anything to do with fiduciary liability.

It’s not like there aren’t other, better options. Pooled employer plans, such as those included in the Retirement Enhancement and Savings Act (H.R.5282), would address the concerns small employers actually have cited as impediments to offering a retirement plan, while still providing the essential employer role in reviewing and monitoring the reliability, integrity and competitiveness of the institution to which they will entrust their workers’ life savings.

The Department of Labor’s website says it best: “Plan sponsors and other fiduciaries have a solemn responsibility to protect the interests of the workers and retirees in their benefit plans.”

It is one thing to consolidate routine plan administrative functions, and something else altogether to relinquish all responsibility for selection and oversight of an entity that will control a workforce’s lifetime of retirement savings.

Legislation that stands between employers and the protection of those interests puts retirement plans, retirement plan investors — and the nation’s retirement security itself — at risk.

Brian H. Graff, Esq., APM, is the Executive Director of NAPA and the CEO of the American Retirement Association. This column appears in the Fall 2018 issue of NAPA Net the Magazine.