On August 31, 2018 the President signed an executive order entitled “Executive Order on Strengthening Retirement Security in America” that was aimed at increasing the number of employees being offered retirement programs via their employer and to slow the required distributions from such plans. The order contains instructions for the Department of Labor and Treasury Department to consider various revisions to requirements related to qualified retirement plans.
The broad areas addressed in the guidance are:
- Expanding access to Multiple Employer Plans and Other Retirement Plan Options
- Qualification Requirements for Multiple Employer Plans
- Improving the Effectiveness of and Reducing the Cost of Furnishing Required Notices and Disclosures
- Updating Life Expectancy and Distribution Period Tables for Purposes of Required Minimum Distribution Rules
The order argues that broadening access to multi-employer plans would help reduce costs and thus encourage small employers to adopt such programs. The order states:
Expanding access to multiple employer plans (MEPs), under which employees of different private-sector employers may participate in a single retirement plan, is an efficient way to reduce administrative costs of retirement plan establishment and maintenance and would encourage more plan formation and broader availability of workplace retirement plans, especially among small employers.
To expand access, the order provides the following directive to the Department of Labor:
(i) The Secretary of Labor shall examine policies that would:
(1) clarify and expand the circumstances under which United States employers, especially small and mid-sized businesses, may sponsor or adopt a MEP as a workplace retirement option for their employees, subject to appropriate safeguards; and
(2) increase retirement security for part-time workers, sole proprietors, working owners, and other entrepreneurial workers with non-traditional employer-employee relationships by expanding their access to workplace retirement plans, including MEPs.
(ii) Within 180 days of the date of this order, the Secretary of Labor shall consider, consistent with applicable law and the policy set forth in section 1 of this order, whether to issue a notice of proposed rulemaking, other guidance, or both, that would clarify when a group or association of employers or other appropriate business or organization could be an “employer” within the meaning of section 3(5) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1002(5).
Another issue the order addresses is the risk that a failure by a single employer to meet all the qualification requirements may put the entire program at risk. Thus, the order contains an additional directive to the Department of Labor in this area:
Within 180 days of the date of this order, the Secretary of the Treasury shall consider proposing amendments to regulations or other guidance, consistent with applicable law and the policy set forth in section 1 of this order, regarding the circumstances under which a MEP may satisfy the tax qualification requirements set forth in the Internal Revenue Code of 1986, including the consequences if one or more employers that sponsored or adopted the plan fails to take one or more actions necessary to meet those requirements. The Secretary of the Treasury shall consult with the Secretary of Labor in advance of issuing any such proposed guidance, and the Secretary of Labor shall take steps to facilitate the implementation of any guidance, as appropriate and consistent with applicable law.
The order also argues that various disclosure and notice rules may be both unduly costly and fail to provide needed information to participants due to complexity. The order states:
Similarly, reducing the number and complexity of employee benefit plan notices and disclosures currently required would ease regulatory burdens. The costs and potential liabilities for employers and plan fiduciaries of complying with existing disclosure requirements may discourage plan formation or maintenance. Improving the effectiveness of required notices and disclosures and reducing their cost to employers promote retirement security by expanding access to workplace retirement plans.
To accomplish this goal, the order provides the following directive to the Departments of Labor and Treasury:
Within 1 year of the date of this order, the Secretary of Labor shall, in consultation with the Secretary of the Treasury, complete a review of actions that could be taken through regulation or guidance, or both, to make retirement plan disclosures required under ERISA and the Internal Revenue Code of 1986 more understandable and useful for participants and beneficiaries, while also reducing the costs and burdens they impose on employers and other plan fiduciaries responsible for their production and distribution. This review shall include an exploration of the potential for broader use of electronic delivery as a way to improve the effectiveness of disclosures and to reduce their associated costs and burdens. If the Secretary of Labor finds that action should be taken, the Secretary shall, in consultation with the Secretary of the Treasury, consider proposing appropriate regulations or guidance, consistent with applicable law and the policy set forth in section 1 of this order.
Finally, the order looks to attempt to allow participants to take funds from retirement plans more slowly. The order argues that current distributions rules are outdated, forcing funds out faster than is prudent:
Outdated distribution mandates may also reduce plan effectiveness by forcing retirees to make excessively large withdrawals from their accounts — potentially leaving them with insufficient savings in their later years.
The order concludes by providing the following directive to the Department of Treasury regarding considering an update to life expectancy tables used for the distributions:
Within 180 days of the date of this order, the Secretary of the Treasury shall, consistent with applicable law and the policy set forth in section 1 of this order, examine the life expectancy and distribution period tables in the regulations on required minimum distributions from retirement plans (67 Fed. Reg. 18988) and determine whether they should be updated to reflect current mortality data and whether such updates should be made annually or on another periodic basis.
Note that, in this case, unless the Treasury decouples the tables for qualified plans from those used for IRAs, also allow for a slower payout from IRA accounts. This raises the possibility, though not the certainty, that required minimum distribution amounts for 2019 might be reduced for payments from IRAs.