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Could Retirement Reform Bypass MEPs?


Update as of April 1, 2019 at 1:20 pm: We understand from inside sources that a provision to provide for so-called “open MEPs” will be added to the Ways and Means Committee’s SECURE Act set to be marked up in committee on Tuesday, April 2. The provision, as we understand it, will be based on legislation introduced by Reps. Ron Kind (D-WI) and Mike Kelly (R-PA). 

The House Ways & Means Committee has unveiled bipartisan retirement security legislation that it plans to consider April 2, along with a few surprises. 

As anticipated, House Ways & Means Committee Chairman Richard Neal (D-MA) announced that the committee will convene a markup that day to consider several bills, including the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. A live stream of the markup will be available here.

In preparation for the April 2 markup, Chairman Neal, along with Rep. Ron Kind (D-WI), Ways & Means Committee Ranking Member Kevin Brady (R-TX) and Rep. Mike Kelly (R-PA), introduced the bipartisan SECURE Act on March 29. Among other things, the legislation seeks to expand retirement savings opportunities and improve the portability of lifetime income options.  


Interestingly, however, the SECURE Act does not currently include a provision to provide for so-called “open” multiple employer plans (MEPs). Enactment of open MEP legislation has been highly anticipated by the retirement community and it’s somewhat surprising to see it not included in the draft legislation. It is still very possible, however, that changes will be made to include open MEPs during the committee’s markup.  

In fact, Reps. Vern Buchanan (R-FL) and Ron Kind (D-WI) – both members of the House Ways & Means Committee – on March 28 reintroduced their bipartisan legislation (the Retirement Security for American Workers Act) to permit businesses to join together in MEPs with pooled plan providers (PPPs).

Under their legislation, employers could join a covered MEP as part of a pooled employer plan (PEP) that is managed by a PPP. The ERISA requirements regarding the types of employers that may participate together in a MEP would be expanded for pooled provider plans to eliminate any requirement that the employers in the plan be related to each other in some fashion.


Meanwhile, the SECURE Act pulls from a number of bipartisan bills that were introduced last Congress, but never enacted: the Retirement Enhancement and Savings Act, Rep. Brady’s Family Savings Act, and Chairman Neal’s Retirement Plan Simplification and Enhancement Act

Below are highlights of some of the key provisions currently contained in the SECURE Act. Keep in mind that everything is still subject to change as this legislation moves through the legislative process. 

Expand retirement savings by increasing the auto enrollment safe harbor cap. The cap on automatic enrollment contribution escalation would be increased from 10% to 15% of employee pay under an automatic enrollment safe harbor plan.

Simplification of safe harbor 401(k) rules. The legislation changes the nonelective contribution 401(k) safe harbor to provide greater flexibility, improve employee protection and facilitate plan adoption. 

Increased tax credit for small employer plan start-up costs. A new tax credit of up to $500 per year to employers would be permitted to help defray startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment.

Portability of lifetime income options. Qualified DC plans, 403(b) plans or governmental 457(b) plans would be permitted to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan or IRA of lifetime income investments or distributions of a lifetime income investment in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer authorized to be held as an investment option under the plan. 

Allowing long-term part-time workers to participate in 401(k) plans. Except in the case of collectively bargained plans, the bill requires employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one-year-of-service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service. 

Plans adopted by filing due date may be treated as in effect as of close of year. Businesses would be permitted to treat qualified retirement plans adopted before the due date, including extensions, of the tax return for the tax year to treat the plan as having been adopted as of the last day of the tax year.

Combined annual reports. The IRS and DOL would be directed to effectuate the filing of a consolidated Form 5500 for similar plans. Plans eligible for consolidated filing must be DC plans, with the same trustee, the same named fiduciary (or named fiduciaries) under ERISA, and the same administrator, using the same plan year, and providing the same investments or investment options to participants and beneficiaries. 

Disclosure regarding lifetime income. Benefit statements provided to DC plan participants would be required to include a lifetime income disclosure at least once during any 12-month period, illustrating the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams. 

Fiduciary safe harbor for selection of lifetime income provider. A safe harbor would be afforded to fiduciaries with respect to the selection of a lifetime income provider. Among other things, the fiduciary would be required to obtain written representations from the insurer that they are licensed to offer such contracts and that they operate under a certificate of authority from the insurance commissioner of its domiciliary state.

Modification of nondiscrimination rules to protect longer service participation. The legislation modifies the nondiscrimination rules with respect to closed plans to permit existing participants to continue to accrue benefits.

Treatment of custodial accounts on termination of section 403(b) plans. Treasury would be required to issue guidance under which if an employer terminates a 403(b) custodial account, the distribution needed to effectuate the plan termination may be the distribution of an individual custodial account in kind to a participant or beneficiary.

Increase in age for required beginning date for mandatory distributions. The bill increases the required minimum distribution age from 70½ to 72.

Penalty-free withdrawals from retirement plans for individuals in case of birth or adoption.The legislation provides for penalty-free withdrawals from retirement plans for any “qualified birth or adoption distributions.”

Revenue Raisers

The SECURE Act also includes four provisions – two of which are retirement-related – that seek to raise revenue to help offset the cost of the bill: 

  • Modifications to required minimum distribution rules. The RMD rules would be modified with respect to DC plan and IRA balances upon the death of the account owner. 
  • Increased penalties for failure to file retirement plan returns. The Form 5500 penalty would be modified to $105 per day, not to exceed $50,000. Failure to file a registration statement would incur a penalty of $2 per participant per day, not to exceed $10,000. Failure to file a required notification of change would result in a penalty of $2 per day, not to exceed $5,000 for any failure. Failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year. 

A section-by-section summary of the SECURE Act is available here; text of the SECURE Act is available here