President Issues Executive Order to Modify Retirement Plans
On August 31, President Trump issued an executive order (“EO”) regarding retirement plans that announced the federal government's goal of expanding access to these plans for American workers. Effective March 1, 2019, the EO directs the Secretary of Labor to clarify and expand the circumstances under which employers may sponsor or adopt a multiple employer plan (“MEP”) and devise ways to make retirement plan disclosures more understandable, useful and cost-efficient.
The EO also directs the Secretary of the Treasury to consider issuing guidance on when an MEP satisfies the tax-qualification requirements under the Internal Revenue Code and examine the life-expectancy and distribution-period tables on required minimum distributions in order to determine whether they should be updated to reflect current mortality data—in addition to how often updates should be made.
This EO impacts a broad spectrum of employers, certain closely held businesses with smaller employee populations and certain demographics, professional services firms, physician practice plans, technology and financial services startups, family offices, and many additional employer segments. A few observations:
- While the cited MEP design provisions are not new, they may be more expansive than prior proposals.
- The required minimum distributions provision would result in lower required annual distribution amounts.
- America’s workforce continues to age faster than its influx of younger employees. According to the Bureau of Labor Statistics, 23% of all private-sector, full-time workers lack access to a workplace retirement plan. This percentage increases to 34% when part-time workers are taken into account.
- Small businesses are less likely to offer retirement benefits. In 2017, approximately 89% of workers at private-sector establishments with 500 or more workers were offered a retirement plan. This is compared to only 53% for workers at private-sector establishments with less than 100 workers.
- Regulatory burdens and complexity can be costly and discourage employers, especially small businesses, from offering workplace retirement plans to their employees. Businesses are sensitive to the overall expense of setting up such plans.
- A recent Pew Charitable Trust survey found that 71% of small- and medium-sized businesses that do not offer retirement plans were deterred by the high costs; 37% cited this as their main reason. The EO proposes that federal agencies should revise or eliminate rules and regulations that impose unnecessary costs and burdens on businesses, especially small businesses, and that hinder formation of workplace retirement plans.
EisnerAmper’s Employee Benefits Plan Consulting and Compensation Practice, with assistance from the firm’s Personal Wealth Advisors Practice, continues to monitor the potential impact on retirement plan design considerations and will update you as the EO effective date approaches. We are also available to answer your questions and provide options tailored to your workforce demographics and compensation and retirement plan objectives.