MEPs Resurface as ‘PEPs’ as Senate Finance Approves New Retirement Bill
The Senate Finance Committee has cleared two pieces of retirement legislation that are now pending before the full Senate, including one that includes a new brand of multiple employer plan (MEP) for the private sector.Meet the PEP — and the PPP
One of the bills, the Retirement Enhancement and Savings Act of 2016, contains more than 30 mainly retirement-related provisions and cost offsets. The initial Chairman’s Mark
— or original version — of this legislation was released on Sept. 19. On Sept. 21, Finance Committee Chairman Orrin Hatch (R-Utah) released a so-called Modified Mark — or amended version — of the legislation which included 14 new provisions (and tweaked one provision in the initial bill) that were combined with the original bill. The final version sailed through the Senate Finance Committee on a unanimous vote, 26-0.
Significantly, the Modified Mark contains a proposal that would allow two or more unrelated private employers to adopt a defined contribution pooled employer plan (PEP) as long as the PEP has a pooled plan provider (PPP) as the named fiduciary to the plan. The PPP would also be responsible for the administration and operation — services such as performing nondiscrimination testing — of the plan in compliance with ERISA and the tax code. Participating employers would have a fiduciary duty to prudently select and monitor the PPP — but would not be expected to run the day-to-day functions of the plan. The PPP could also delegate other fiduciary functions — like investment selection — to third parties or other named fiduciaries. As a result of new plan formations, and the resulting decrease in tax revenues as more individuals have access to plans and defer taxes on their retirement savings, this proposal is estimated to cost $3.2 billion over 10 years.
To offset the cost of the PEP proposal, the Modified Mark included a proposal — commonly called the “stretch IRA” proposal — that would force certain beneficiaries of inherited qualified plan or IRA assets to distribute those assets over a five-year period. However, the five-year distribution rule in the Modified Mark would only apply to amounts in these accounts above $450,000. According to the Employee Benefit Research Institute
, only 4.7% of IRAs have account balances above $450,000. The Modified Mark’s stretch IRA proposal is estimated to raise $3.2 billion over 10 years, offsetting the cost of the PEP proposal.
Other retirement-related revenue raisers proposed in the Modified Mark include:
Union Miner Fund Bailout Proposal
- allowing hardship withdrawals of employer contributions and elective deferral earnings in 401(k) plans;
- increasing the penalties for a failure to file the Form 5500; and
- creating a fiduciary safe harbor for the selection of a lifetime income provider to provide a guaranteed income contract option within a qualified plan.
The other bill — a proposal to address the funding shortfall
in the United Mine Workers of America’s (UMWA) health and pension multiemployer plans — sparked a contentious debate and ultimately split the Republican members of the Finance Committee.
The proposal would allow fund transfers from the Abandoned Mine Reclamation Fund into the UMWA’s multiemployer health and pension plans and extend certain customs user fees to offset the cost of the proposal. Some Finance Committee Republicans expressed concern during the markup of the bill about the precedent this legislation would set going forward, as other multiemployer plans face daunting funding challenges. Despite those concerns, committee approved the legislation, the Miners Protection Act of 2016 by an 18-8 margin, with all 12 committee Democrats voting in support and 8 out of the 14 Committee Republicans opposed.
While the ultimate fate of both pieces of legislation remains uncertain, it is a virtual certainty that no further congressional action will be taken on either bill before the November general election. However, iterations of the bills could be included in any omnibus year-end legislative package considered in a lame duck session of Congress in December.Andrew Remo is the American Retirement Association’s Director of Legislative Affairs.