Bill Would Eviscerate ERISA Protections for Small Plan Participants

It’s said that the devil is in the details – and indeed, bipartisan legislation that claims to lower barriers for small plan adoption might do so at the expense of participants.

The Small Business Employees Retirement Enhancement Act, introduced earlier this week by Sen. Tom Cotton (R-AR) includes provisions regarding multiple employer plans (MEPs), a type of employee benefit plan that can be maintained as a single plan in which two or more unrelated employers participate – a concept that has received bipartisan support on the Hill.

However, under this bill, employers that have 100 or fewer employees who earned at least $5,000 during the preceding year and that participate in a pooled employer plan (PEP) registered with the Labor Department would not be considered a fiduciary to that plan – including with respect to the selection and monitoring of any plan service provider or any investment under the plan.

That’s right – no fiduciary responsibility.

Other than size, the only restrictions would be that the employer:

  • could not be the pooled plan provider or a plan service provider for the plan; and
  • would have to ensure that at least annually, and upon any agreed-to change in the compensation paid to the PEP provider, that the compensation paid to the PEP provider under the agreement was “reasonable.”

Those restrictions notwithstanding, under the bill, an employer would have no obligation to consider cost, competency, financial stability or even the likelihood of fraud in choosing a pooled plan service provider or the plan’s investments – setting aside protections that have been extended to participants since the passage of ERISA in 1974. Unfortunately, it will be the participants who will be at risk for excessive fees, bad investments and potential fraud.

Similar provisions have been included in the Automatic Retirement Plan Act of 2017 (H.R. 4523) introduced by Rep. Richard Neal (D-MA).

“We’re very concerned how this fundamentally threatens the fiduciary protections that have existed for participants since ERISA,” noted Brian Graff, CEO of the American Retirement Association and Executive Director of NAPA.

Stay tuned for more on this important issue.

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