Trump Asks Agencies to Revise Retirement Plan Rules

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On August 31, President Trump launched the Labor Day holiday weekend by issuing an Executive Order directing the Secretaries of Labor and Treasury—and the agencies they lead—to consider options for changing several important items pertaining to retirement savings plans. The President focused on 1) broadening retirement plan availability by expanded use of multiple employer plans (MEPs) and a simplified plan disclosure process, and 2) enhancing savings preservation by modernizing the determination of required minimum distributions (RMDs) from IRAs and employer-sponsored retirement plans.

Expand Access through Common Plan Sponsorship and Participation

In an Executive Order signing ceremony in Charlotte, North Carolina, President Trump spoke of a need “to expand access to … retirement plans for American workers.” He cited a Bureau of Labor Statistics finding that 34 percent of full- and part-time U.S. workers have no employer-provided retirement plan. A White House Fact Sheet cited a disparity in access to a retirement plan if employed by a large employer (89 percent) versus a small employer (53 percent).

The Trump Administration proposes relaxing the MEP rules to allow the formation of Association Retirement Plans, or ARPs, which—as is the nature of MEPs—would allow employees of different employers to participate in a common plan. The Executive Order directs the Department of Labor (DOL) and the Treasury Department to take the following actions.

  • Within six months, the DOL is to consider whether to propose regulations or other guidance that would clarify which business entities and individuals can join together in a MEP.

  • The DOL must consider sole proprietors, part-time workers, and “entrepreneurial workers with nontraditional employer-employee relationships”—such as gig-economy workers—in this guidance process.

  • Within six months the Treasury Department is to consider proposing guidance—in consultation with the DOL—that would shield a MEP-participating employer from the consequences of compliance failures by other employers.

It is worth noting that there was no indication that the Administration is backing the “open MEP” concept, wherein no common ownership, business purpose, or other linkage would be a condition for MEP participation.

Make Plan Disclosure More Efficient, More Effective

One of the challenges faced by retirement plan sponsors is disclosing vital, required information to employees. In the Executive Order, President Trump directed the DOL and Treasury Department to jointly undertake an effort “to make retirement plan disclosures … more understandable and useful for participants and beneficiaries, while also reducing costs and burdens they impose on employers and plan fiduciaries.” The Executive Order also contains the following.

  • Within one year, the Departments of Labor and Treasury are to consider regulatory or other guidance options to reduce the number and complexity of retirement plan disclosures.

  • The Executive Order links the cost and burden of plan disclosures and notices with suppressing the formation of more employer-sponsored retirement plans.

  • The new guidance—if issued—should address not just cost, but “potential liability” associated with the disclosure process.

  • The agencies’ review of guidance options is to “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.”

Align Required Distributions with Retirement Realities

The Executive Order points to current regulations leading to unnecessary rapid withdrawal of retirement savings and retirees experiencing a shortfall in financial resources during their lifetime. The President is seeking a reexamination of regulations that dictate the rate of required withdrawal. The Executive Order requires the Treasury Department to take the following actions within six months.

  • Review the mortality tables that now govern the speed of distribution—generally beginning at age 70½—in accounts subject to RMDs.

  • Consider the latest data on longevity in determining whether current regulations—and the life expectancy tables within them—should be revised.

  • Consider the appropriateness of more frequent updating of the life expectancy calculation factors in the RMD regulations. The Executive Order suggests this could be as often as annually.

DOL and Treasury Changes Yet to Be Determined

Nothing that the President has asked of the DOL and Treasury in his Executive Order has the force of law, or makes any immediate changes to retirement savings arrangements. It is a prompt to incrementally change the compliance landscape by regulatory action, in the absence of action by Congress.

The changes President Trump is seeking are not sweeping, but very targeted.  The most noteworthy—addressing the MEP rules and plan disclosures—are clearly meant to diminish employer-perceived obstacles to establishing and maintaining plans. The ball is now in the agencies’ court. Yet to be determined is the extent to which such changes will be made in agency drafting rooms, versus the halls of Congress.

Perhaps noteworthy, the DOL recently issued final regulations on association health plans, which offer guidance on the ability of multiple employers to join together under a single health insurance plan. Will these regulations ultimately serve as a model for retirement arrangements?

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