What will be the impact on your plan?
The last piece of major legislation impacting retirement plans was the Pension Protection Act of 2006. Although legislation has been proposed in recent years, none of it has successfully been passed, despite bipartisan support. In the current Congressional session, retirement bills have been introduced in both the Senate [Retirement Enhancement and Savings (RESA) Act] and the House [Setting Every Community Up for Retirement Enhancement (SECURE) Act]. These two proposed bills are very similar with respect to their key provisions. Due to the bipartisan support and the general agreement about solutions to help enhance retirement security for Americans, there appears to be more optimism that legislation will be passed this year.
Some of the key objectives of the bills include increasing coverage and savings, reducing the cost and administrative burden for plan sponsors, and facilitating lifetime income options. This would be accomplished by:
- Making it easier for companies to participate in Multiple Employer Plans (MEPs).
Currently, there are compliance barriers which limit the usage of MEPs. The proposed legislation would make it easier for companies to band together in a MEP. Additionally, it would provide more opportunities for MEPs to reduce the costs, administrative burden and fiduciary exposure for participating companies. The changes could give small companies currently not sponsoring a plan an opportunity to participate in a MEP, or give companies currently sponsoring a plan an opportunity to terminate their plan in favor of participating in a MEP.
- Addressing matters that have hampered the use of lifetime income options for plan participants.
Lack of portability has been a core contributing factor in the limited use of such investment options (typically insurance products). The proposals would allow transfers of these options to another employer-sponsored plan or IRA; this would enable participants to preserve the investment and avoid surrender charges and other fees.
- Creating a fiduciary safe harbor for the selection of lifetime income providers.
The safe harbor would provide fiduciaries protection with respect to the selection of insurers and liability for any losses due to the insurer’s failure to meet its obligations. The lack of such a safe harbor has prevented sponsors from offering these income options.
There’s plenty more in these proposed bills. If and when legislation is passed, it will be worthwhile evaluating the final provisions to determine how your plan can take advantage of any new opportunities. Based on the proposed bills, the opportunities could relate to reducing cost, administrative burden and fiduciary exposure for the plan sponsor, as well as improving plan features, and thus outcomes, for plan participants.