President Trump’s recently issued Executive Order entitled “Strengthening Retirement Security In America” (the “EO”) may be helpful to businesses that sponsor or participate in multiple employer retirement plans (“MEPs”), as well as single employer plans, even if the sponsors and employers are not small business owners. While the stated purpose of the EO, which was issued on August 31, 2018 (the “EO Date”), is to “promote retirement security for America’s workers,” the EO directs attention to small business owners (less than 100 employees), noting that such businesses are less likely than larger businesses to offer retirement benefits. The EO also notes that regulatory burdens and complexity can be costly and discourage businesses, especially small ones, from offering retirement plans to employees. This post summarizes the four actions identified in the EO that the Federal Government may take to promote retirement security. While these actions are intended to benefit small businesses, large businesses that participate may benefit as well.

First, the EO may expand the circumstances under which a business or organization can sponsor or participate in an MEP. The EO directs the Secretary of Labor to consider, within 180 days following the EO Date, proposing regulations to clarify when a group or association of employers or other appropriate business or organization can be treated as an “employer” within the meaning of Section 3(5) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The definition of “employer” is significant, as an employee benefit plan, such as an MEP, is typically sponsored by an “employer”. (An “employee organization”, such as a labor union, may also sponsor an employee benefit plan.) If an MEP were sponsored by businesses that were not considered a “group or association of employers” pursuant to Section 3(5) of ERISA, the MEP would not be treated as a single plan covering all of the participating businesses. In that case, each business participating in the MEP would be treated as sponsoring its own plan for all purposes under ERISA and would have to separately comply with ERISA’s requirements, such as preparing a written plan document and summary plan description, having an ERISA bond, and filing a Form 5500. Clarification of the term “employer” may allow businesses that sponsor or participate in single employer plans to treat such plans as an MEP and thereby minimize their individual responsibilities under ERISA. The clarification may also create new opportunities for businesses to sponsor MEPs.

Second, the EO may reduce compliance burdens for MEP sponsors. The EO directs the Secretary of the Treasury to consider, within 180 days following the EO Date, amending regulations to modify the rule providing that if one participating employer in an MEP fails certain non-discrimination requirements, the entire MEP fails. For example, under current Treasury regulations, the actual deferral percentage test and actual contribution percentage test are applied separately to each participating employer in the MEP, as if that employer maintained a separate plan. If one participating employer fails one of the tests, then the MEP fails the test and could potentially be disqualified for all participating employers. This regulation can present a dilemma for MEP sponsors, as they cannot be certain that each participating employer will satisfy the non-discrimination requirements. Therefore, modification of the regulations should benefit businesses that sponsor MEPs.

Third, the EO may reduce the costs associated with required disclosures to participants in MEPs, and in single employer plans. The EO directs the Secretaries of Labor and Treasury to review, within one year following the EO Date, actions that could make retirement plan disclosures more useful for participants, while reducing costs for sponsors and participating employers.

Finally, the EO directs the Secretary of the Treasury to determine, within 180 days following the EO Date, whether the actuarial tables used to calculate the amount of required minimum distributions should be updated annually (or on another periodic basis) to reflect current mortality data. This update could reduce the amount of annual required minimum distributions, which would benefit participants in single employer plans, as well as in MEPs. Such change could also reduce the administrative burden on plan sponsors and participating employers associated with making these distributions.

Takeaways

If the actions described above result in changes in law, such changes should benefit businesses that sponsor or participate in MEPs and single employer plans.   In addition, such changes may provide new opportunities for businesses to sponsor MEPs. Given the time frames imposed by the EO, businesses might see proposed regulations or other guidance addressing some of these changes during 2019.

The New York City Council (the “NYCC”) has proposed to establish a “Savings Access New York Retirement Program” (the “NYC Retirement Program”) that would require New York City private-sector employers with at least 10 employees to offer a new savings program to employees who are not eligible to participate in an employer-provided savings plan (such as a 401(k) or 403(b) plan). Currently the NYCC proposal is in committee, and no further action has been taken to date.

Although passage of the NYC Retirement Program is far from certain, this proposal is consistent with other state and local government legislative efforts to increase the retirement savings of employees. To assist employers with long-range benefits planning, this blog provides a high-level summary of the NYCC proposal and the potential questions and issues that employers may face if required to implement the NYC Retirement Program.

Summary of the NYC Retirement Program

  • An employer, whether for-profit or otherwise, with a physical presence in NYC will be a “covered employer” subject to the NYC Retirement Program if the employer (i) currently employs no fewer than 10 employees and has employed no fewer than 10 employees for the prior calendar year, (ii) has been in continuous operation for at least two years, and (iii) has not offered, in the previous two years, a retirement plan to its “eligible employees” (as defined below).
  • An employee will be eligible for the NYC Retirement Program if such employee (i) is at least 18 years old, (ii) is employed part-time or full-time for compensation in New York City by a covered employer, and (iii) has not been offered a retirement plan by the covered employer during the preceding two years. Under the NYC Retirement Program, a “retirement plan” includes a qualified retirement plan under Section 401(a) and Section 403(a) and (b) of the Internal Revenue Code of 1986, as amended, however, many such retirement plans exclude certain classifications of employees, such as part-time or temporary employees that would be covered by the NYC Retirement Program.
  • The NYC Retirement Program provides for an automatic 3% contribution via payroll deduction by eligible employees to a Roth or traditional IRA. The employee will be permitted to opt-out of the program or to contribute an amount other than 3%.
  • Covered employers will have the following obligations:
    • Enrolling eligible employees;
    • Remitting payroll deductions for deposit in the NYC Retirement Program;
    • Providing information to eligible employees about the NYC Retirement Program; and
    • Maintaining records documenting compliance with the NYC Retirement Program.
  • Covered employers that fail to comply with the NYC Retirement Program may be subject to civil monetary penalties, the amount of which will be based on the number of eligible employees affected and the duration of the compliance failure.
  • Administrative fees for the NYC Retirement Program will be allocated pro rata to the accounts of eligible employees.
  • The NYC Retirement Program is intended to be exempt from the Employee Retirement Income Security Act of 1974, as amended, although the current proposal does not indicate the exemption that will be used.

Takeaways for Employers

Given the potential reach of the NYCC proposal and the ambiguities it raises, employers with a presence in New York City should monitor the status of the NYCC proposal. Even large employers who currently offer broad-based retirement plans may not be exempt from the NYC Retirement Program if retirement benefits are not offered to all eligible employees covered by the NYC Retirement Program.