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Ways & Means Moves on MEPs, PEPs and Other Retirement Savings Provisions

Following a day-long and occasionally contentious markup session, on Sept. 13 the House Ways & Means Committee approved on party-line votes three tax bills as part of the Tax Reform 2.0 push – one of which focuses on retirement savings.

The Family Savings Act (H.R. 6757), which draws partially from the bipartisan Retirement Enhancement and Savings Act (RESA), will be of particular interest to retirement plan professionals.

Nuanced Opposition

While committee Democrats came out expressing strong opposition to the broader legislation to make the tax cuts permanent, they took a more nuanced approach with the Family Savings Act. Notably, the committee’s ranking Democrat, Rep. Richie Neal (MA), who introduced his own retirement reform proposals late last year, applauded committee chairman Kevin Brady (D-TX) for his interest in the retirement savings area, but noted that he is opposed to the legislation as drafted.

“H.R. 6757 includes a number of provisions that will help Americans save for retirement. However, I plan to oppose this bill today because it’s only a drop in the ocean and is missing key bipartisan provisions that will greatly improve our retirement system,” Neal stated.

Neal noted that RESA generally would require most employers to maintain a 401(k) plan for their employees, and expressed his disappointment that a number of provisions from the bill were not included in Brady's bill. In particular, he singled out provisions to encourage small employers to implement automatic enrollment in their plans, remove the automatic enrollment safe harbor cap and increase the small employer pension plan start-up credit.

Neal also noted that Brady's bill is missing key proposals to address lifetime income, specifically that it does not provide a fiduciary safe harbor for the selection of a retirement plan annuity — a point that could well come back into play in conference or by an amendment.

Brady emphasized that the committee’s action is the first step in legislative process and that he will continue to keep door open as the legislation moves forward.

MEPs and PEPs

A key component of the Family Savings Act is the provision to ease the commonality rules for multiple employer plans (MEPs) and eliminate the so-called “one bad apple” rule.

The open MEP concept 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. Easing the existing MEP rules was also one of the areas President Trump directed the Labor and Treasury departments to consider expanding in his Aug. 31 Executive Order.

Under H.R. 6757, employers could still form a MEP under the existing commonality rules, or they could join a covered MEP as part of a “pooled employer plan” (PEP) that is managed by a “pooled plan provider” (PPP).

In general, a covered MEP would be defined as a multiple employer qualified DC plan or a plan that consists of IRAs (including under an IRA trust) that either:

  • is maintained by employers which have a common interest other than having adopted the plan; or

  • has a pooled plan provider subject to certain requirements.


A PEP would be treated for purposes of ERISA as a single plan established to provide benefits to the employees of two or more employers. For a plan to be a pooled employer plan, the plan terms must:


  • designate a PPP and provide that it is a named fiduciary of the plan; and

  • designate one or more trustees (other than an employer in the plan) to be responsible for collecting contributions and holding the assets of the plan.


In addition, it provides that each employer in the plan retains fiduciary responsibility for the selection and monitoring of the PPP and any other designated named fiduciary of the plan. Each employer in the plan would also retain fiduciary responsibility — to the extent it was not otherwise delegated to another fiduciary by the pooled plan provider — over the investment and management of the portion of the plan’s assets attributable to the employees of that employer in the plan.



Universal Savings Accounts

Another cornerstone provision in Brady’s legislation is the creation of a new Universal Savings Account (USA). In general, the accounts would serve as more of a general savings vehicle outside the employer-based savings system in which account holders could withdraw both contributions and earnings at any time, and for any reason, without tax penalties.

The proposal would permit a USA to be established by an individual through a trust arrangement under similar requirements that apply to trust arrangements under IRAs. Individuals would be permitted to make annual contributions up to $2,500, not to exceed the individual’s compensation for the tax year. The individual’s account balance would be nonforfeitable and contributions would not be permitted for dependents. Distributions from USAs generally would not be includible in gross income. 

As noted in an earlier post, this provision “costs” $8.6 billion over the 10-year period 2019-2028, and could be a “non-starter” in the Senate.

Retirement Reforms

Other provisions in the Family Savings Act that draw from RESA include:

Improvement of rules relating to election of safe harbor 401(k) status. In general, the bill would eliminate the notice requirement for non-elective contributions and give small business owners the flexibility to switch to plans with non-elective contributions.

Portability of lifetime income investments. Plan participants would be permitted to roll over their lifetime income investment to another retirement savings vehicle if the plan sponsor decides for whatever reason to discontinue that investment option in the plan — notwithstanding the existing distribution restrictions in employer-sponsored plans.

Allows employers to adopt a qualified plan up to due date of tax return. If an employer adopts a qualified retirement plan after the close of a tax year but before the tax return filing due date, the employer may elect to treat the plan as having been adopted as of the last day of the tax year.

Modification of nondiscrimination rules to protect older, longer service participants. In general, the bill would provide nondiscrimination testing relief to certain employers with closed defined benefit plans, provided they give new employees a comparable benefit in a DC plan. The proposal treats a closed or frozen applicable DB plan as meeting the minimum participation requirements if the plan met the requirements as of the effective date of the plan amendment when the plan was closed or frozen.

In addition, the proposal treats make-whole contributions under a DC plan to be tested on an equivalent benefit accrual basis (without having to satisfy the threshold conditions under present law), subject to certain requirements.

Treatment of custodial accounts on termination of 403(b) plans. Custodial accounts of a terminating 403(b) plan held by an IRS approved nonbank trustee would be deemed to be IRAs, as of the date of the termination.

Clarification of retirement income account rules relating to church-controlled organizations: The proposal clarifies that a retirement income account may cover a duly ordained, commissioned, or licensed minister of a church regardless of the source of their compensation, as well as an employee of such organization, subject to certain circumstances.

Other Provisions

The Family Savings Act legislation also:

  • Requires the PBGC to contract with an appropriate agency or organization to conduct a study of the PBGC’s single-employer pension insurance modeling system (PIMS).

  • Treats certain taxable non-tuition fellowship and stipend payments as compensation for IRA purposes.

  • Repeals the prohibition on contributions to a traditional IRA by individuals who have attained age 70½.

  • Clarifies the treatment of certain retirement plan contributions picked up by governmental employers for new or existing employees.

  • Provides an exemption from required minimum distribution rules for individuals with $50,000 or less in retirement savings.

  • Permits a separate limit (including catch-up contributions) to other elective deferrals made by members of the Ready Reserve of the Armed Forces who make elective deferrals to the federal Thrift Savings Plan.

  • Prohibits qualified employer plans from making loans through credit cards and other similar arrangements.

  • Allows families to access their retirement accounts penalty-free for new child expenses capped at $7,500, with the ability to replenish those accounts in the future.

  • Expands Section 529 education accounts to also be available to pay for apprenticeship fees, cover the cost of home schooling and help pay off student debt.


The three bills next move to the House for consideration. Republican leaders have indicated that they intend to bring the legislation to the House floor for a vote by the end of this month. Congress is tentatively scheduled to adjourn in early October to campaign for the elections, and then return Nov. 13 for a lame-duck session.