Congress Considers 401(k) Changes
The Retirement Enhancement and Savings Act (RESA) is a bi-partisan legislative proposal designed to encourage the growth of retirement savings plans among small businesses and the workers they employ.
Two years after its introduction, the bill co-sponsored by Senator Orrin Hatch (R., Utah) and Senator Ron Wyden (D., Oregon) is moving slowly through the congressional review process. The retirement legislation is part of a larger package of tax and savings incentives that is gaining increased momentum.
Key features in the Retirement Enhancement and Savings Act bill include the following:
• Permit small businesses to band together to form multiple-employer plans
• Make automatic enrollment available in small business savings plans
• Grant plan participants emergency access to savings
• Allow IRA contributions beyond age 70 ½
• Encourage the use of annuities to generate retirement income streams
• Increase the savings cap beyond the current 10 percent of income
• Expand a business tax credit to offset the cost of setting up savings plans
• Give workers the ability to deposit a U.S. tax refund into retirement savings
From a technical rule-making perspective, the bill will modify the following ERISA provisions regarding employer-provided plans:
• Multiple employer plans
• Automatic enrollment and non-elective contributions
• Terminating or transferring plans
• Reporting and disclosure rules
• Nondiscrimination rules
• Selecting lifetime income providers
• Pension benefit guaranty corporation premiums
If an employer’s plan changes, RESA would allow plan participants to roll over lifetime income options to an IRA for on-going protection.
AARP is supporting the Retirement Enhancement and Savings Act, and the Act is also finding natural allies among financial services companies.
Litigation related to annuity plans is one concern among small business owners, and for this reason the bill provides some protection for plan sponsors against annuity-related lawsuits.
As we mentioned in a recent article titled “ERISA Litigation over 401(k) Plans Has Sponsors Pushing Back,” ERISA litigation involving existing plans surged in 2016 and 2017. According to Bloomberg’s Bureau of National Affairs, more than 50 litigation matters related to 401(k) plans were filed with federal courts in each of those years. Lawsuits targeting 401(k) plans can be grouped into three major categories involving inappropriate investment choices, excessive fees, and self-dealing.
MULTIPLE EMPLOYER VERSUS MULTI-EMPLOYER PENSION PROGRAMS
Allowing small businesses to band together in order to provide and administer benefits more effectively is not a new concept, although it is important to note the distinction between a “multiple employer” pension plan, and a “multi-employer” pension plan.
A multiple employer pension plan (or MEPP) is a qualified retirement plan, such as a 401(k) plan, that is sponsored by multiple unrelated employers.
The Employee Retirement Income Security Act (ERISA) applies to MEPPs, which must meet the requirements of the Internal Revenue Code in order to receive employer contributions for employee retirement benefits.
Farming cooperatives, business franchises, religious, charitable and educational institutions, and Chambers of Commerce are common examples of connected or affiliated employers that may comprise a multiple employer pension plan.
Multiple employer pension plans are not to be confused with multi-employer pension plans, which involve unions and are defined under the Labor Management Relations Act of 1947, known as the Taft-Hartley Act. Multi-employer union plans are commonly found in the hotel, trucking, and construction industries. Multi-employer plans are also governed by ERISA.
EXPANDING RETIREMENT SAVINGS OPTIONS
At a time when 10,000 Americans are turning 65 every day, the Social Security trust funds are coming under future funding pressures. The Social Security Trust Funds for old-age benefits and disability insurance, taken together, could be depleted in 2034, according to a recent report of the Social Security Board of Trustees. Under this scenario, available funds may pay only 75 percent of scheduled benefits at that time.
Over 60 million Americans are now enrolled in Social Security and/or Medicare, and the numbers are growing. Efforts to expand retirement savings options through small businesses are intended to help taxpayers set aside additional funds to supplement old age benefits.
Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert, including matters relating to 401(k) litigation and plan administration. He is a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.