There’s new hope for at least some of the estimated 50 million full-time U.S. workers without access to a retirement savings plan. In this contentious election season, Democrats and Republicans came together to craft a law that could offer pension benefits to employees of small businesses.
On September 21 the Senate Finance Committee voted unanimously, 26–0, to pass the Retirement Enhancement and Savings Act. RESA is one of many efforts to improve upon ERISA, the original omnibus pension legislation of 1974.
Republican Senator Orrin Hatch added the act, which would amend the Internal Revenue Code (ERISA is governed by the U.S. Department of Labor and the U.S. Treasury Department’s Internal Revenue Service), to the Senate’s legislative calendar on November 16.
RESA contains more than 30 provisions that would impact retirement security in both defined contribution plans and IRAs. If the bill passes both houses of Congress, one of its key measures, besides those addressing lifetime income and retirement plan rollovers, is the authorization to open multiple employer plans (MEPs).
“This is a big bill,” observes Jamie Kalamarides, head of institutional investment solutions at Prudential Retirement. “If passed, it would complete the unfinished business of the Pension Protection Act.”
With his employer, Kalamarides, who has testified before the Senate Finance and Health, Education, Labor, and Pensions (HELP) committees, has long pushed for expanding pension coverage to workers who lack it.
Multiple employer plans could solve small companies’ longtime difficulties in sponsoring defined contribution plans. The time, effort, and expense needed to source a reasonably priced retirement plan for a workforce of under 100 can be prohibitive. For that reason, about half of U.S. states are working on designs for public-private retirement plans that would lower employers’ costs.
The MEP solution takes a national approach. Starting in 2020, MEPs, if allowed, would let groups of small employers band together to sponsor one retirement plan for all of their staff. This arrangement would lower plan costs thanks to economies of scale. An outside entity would manage the MEP so small employers, already burdened by the distractions of running a business, could outsource the requisite fiduciary duty and just add another payroll deduction line. Employers would still need to prudently select the provider.
“It’s a big benefit for small employers who are least likely to offer a plan,” says Geoffrey Manville, leader of the government relations team at consulting firm Mercer’s Washington resource group. “I think it’s a consensus reform, particularly in contrast to what’s going on at the state level.”
Next the Senate and the House of Representatives need to pass RESA. This might happen in the lame duck session at the end of the year or early in 2017, when the 115th Congress starts. The DoL would need to offer guidance on the third-party administrator approval process, and the bill instructs the Treasury Department to write a model plan design for MEPs. After that affinity groups — associations of employers with similar interests — such as the Chamber of Commerce, Kiwanis International, or the American Medical Association could get ready to adopt RESA by January 1, 2020.