Mar.Senate Aging Committee Examines MEPs and Ways to Increase Small Business Retirement Plans
On March 7, the Senate Special Committee on Aging examined the issue that many small businesses do not offer retirement plans for their employees. Chairman Herb Kohl (D-Wis.) opened by saying legislation will be introduced in the coming months to make it “much easier” for small businesses to offer retirement plans. Kohl mentioned Census data that estimates only 29 percent of workers at small businesses have access to retirement plans at work, compared with 81 percent of workers at larger companies.
The committee heard testimony from two panels of witnesses. The first panel included Phyllis Borzi, Assistant Secretary of the Employee Benefits Security Administration (EBSA) at the Department of Labor (DOL), and Charles Jeszeck, Director, Education, Workforce and Income Security at the US Government Accountability Office (GAO).
The second panel included Bryan Fiene, Senior Vice President at Robert W. Baird, and John Kalamarides, Senior Vice President at Prudential Retirement. In addition to their testimony, the GAO and Prudential each submitted retirement reports for the record.
Borzi said in her testimony that the DOL expects to release guidance soon to provide tips for Employee Retirement Income Security Act (ERISA) plan fiduciaries regarding target date funds. She said the DOL supports efforts to expand small business coverage and compliance assistance, but that it is just as important that ERISA’s protections for workers’ pensions be maintained.
Jeszeck’s testimony was based on the GAO report which was released on Wednesday as well. The report on private pensions, Better Agency Coordination Could Help Small Employers Address Challenges to Plan Sponsorship, examines 1) the characteristics associated with small employers that are more or less likely to sponsor a retirement plan, 2) challenges small employers face in establishing and maintaining a retirement plan, and 3) options that exist to address those challenges and increase small employer sponsorship.
During the question and answer portion of the panel Kohl asked the participants if multiple employer plans (MEPs) were an avenue worth pursuing. Jeszeck mentioned that a GAO report focusing on MEPs will be released in June. Borzi replied that the proposal allows an entity to create an MEP group consisting of “completely unrelated employers” which the DOL believes could be problematic. She went on to say that the standards are higher for a group of related employers and there is an “association bond” that helps prevent fraud.
Ranking Member Bob Corker (R-Tenn.) inquired why the standards are considered higher for a group of related employers. Borzi responded that the statutory definition requires an employee benefit plan be sponsored by employers so there is an employment relationship. She wondered if adding another option (i.e., MEPs) would add to the complexity of starting a retirement plan.
Sen. Joe Manchin (D-W. Va.) noted that small businesses are often concerned with the fees associated with starting a retirement plan and asked if small employers could expect undue regulations. Borzi said the DOL is currently working on regulations that intend to ease the burden on small employers and give them more tools to make better choices.
Jeszeck told Manchin the GAO report found many small employers are fearful of the term “fiduciary” and have concerns about the amount of paperwork associated with starting and maintaining a plan. He noted that the report recommends the DOL examine the reporting requirements to see what could be streamlined to reduce the paperwork burden on small employers.
Fiene, who testified on the second panel, focused on the challenges keeping small businesses from offering retirement plans, including the recent economic downturn and the absence of clear, accurate, and encouraging information from government agencies. Another point Fiene mentioned was the critical role financial advisors can play in helping small employers start and maintain a retirement plan. He pointed out that defined contribution multiple employer plans (MEPs) can be a very attractive option for small employers and urged Congress and the regulatory agencies to further assist the adoption of MEPs.
Kalamarides focused his testimony on how MEPs can help close the retirement coverage gap and Prudential’s recommendations for expanding access to MEPs. He noted that Prudential believes this challenge should be handled at the Federal level instead of a state reaction. Kalamarides recommended that standards for sponsorship of MEPs should be expanded, fiduciary and plan administrator responsibilities related to participating in an MEP should be limited or eliminated, employer and plan liability for non-compliance with tax laws as a result of a non-compliant participating employer should be eliminated, and recommended that non-discrimination testing be eliminated.
To supplement Kalamarides’ testimony, Prudential submitted a white paper entitled Leveraging Multiple Employer Plans to close the Retirement Coverage Gap.
During the question and answer portion Corker expressed his support for MEPs.
More information about the hearing can be found here.
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On March 7, the Senate Special Committee on Aging examined the issue that many small businesses do not offer retirement plans for their employees. Chairman Herb Kohl (D-Wis.) opened by saying legislation will be introduced in the coming months to make it “much easier” for small businesses to offer retirement plans. Kohl mentioned Census data that estimates only 29 percent of workers at small businesses have access to retirement plans at work, compared with 81 percent of workers at larger companies.
The committee heard testimony from two panels of witnesses. The first panel included Phyllis Borzi, Assistant Secretary of the Employee Benefits Security Administration (EBSA) at the Department of Labor (DOL), and Charles Jeszeck, Director, Education, Workforce and Income Security at the US Government Accountability Office (GAO).
The second panel included Bryan Fiene, Senior Vice President at Robert W. Baird, and John Kalamarides, Senior Vice President at Prudential Retirement. In addition to their testimony, the GAO and Prudential each submitted retirement reports for the record.
Borzi said in her testimony that the DOL expects to release guidance soon to provide tips for Employee Retirement Income Security Act (ERISA) plan fiduciaries regarding target date funds. She said the DOL supports efforts to expand small business coverage and compliance assistance, but that it is just as important that ERISA’s protections for workers’ pensions be maintained.
Jeszeck’s testimony was based on the GAO report which was released on Wednesday as well. The report on private pensions, Better Agency Coordination Could Help Small Employers Address Challenges to Plan Sponsorship, examines 1) the characteristics associated with small employers that are more or less likely to sponsor a retirement plan, 2) challenges small employers face in establishing and maintaining a retirement plan, and 3) options that exist to address those challenges and increase small employer sponsorship.
During the question and answer portion of the panel Kohl asked the participants if multiple employer plans (MEPs) were an avenue worth pursuing. Jeszeck mentioned that a GAO report focusing on MEPs will be released in June. Borzi replied that the proposal allows an entity to create an MEP group consisting of “completely unrelated employers” which the DOL believes could be problematic. She went on to say that the standards are higher for a group of related employers and there is an “association bond” that helps prevent fraud.
Ranking Member Bob Corker (R-Tenn.) inquired why the standards are considered higher for a group of related employers. Borzi responded that the statutory definition requires an employee benefit plan be sponsored by employers so there is an employment relationship. She wondered if adding another option (i.e., MEPs) would add to the complexity of starting a retirement plan.
Sen. Joe Manchin (D-W. Va.) noted that small businesses are often concerned with the fees associated with starting a retirement plan and asked if small employers could expect undue regulations. Borzi said the DOL is currently working on regulations that intend to ease the burden on small employers and give them more tools to make better choices.
Jeszeck told Manchin the GAO report found many small employers are fearful of the term “fiduciary” and have concerns about the amount of paperwork associated with starting and maintaining a plan. He noted that the report recommends the DOL examine the reporting requirements to see what could be streamlined to reduce the paperwork burden on small employers.
Fiene, who testified on the second panel, focused on the challenges keeping small businesses from offering retirement plans, including the recent economic downturn and the absence of clear, accurate, and encouraging information from government agencies. Another point Fiene mentioned was the critical role financial advisors can play in helping small employers start and maintain a retirement plan. He pointed out that defined contribution multiple employer plans (MEPs) can be a very attractive option for small employers and urged Congress and the regulatory agencies to further assist the adoption of MEPs.
Kalamarides focused his testimony on how MEPs can help close the retirement coverage gap and Prudential’s recommendations for expanding access to MEPs. He noted that Prudential believes this challenge should be handled at the Federal level instead of a state reaction. Kalamarides recommended that standards for sponsorship of MEPs should be expanded, fiduciary and plan administrator responsibilities related to participating in an MEP should be limited or eliminated, employer and plan liability for non-compliance with tax laws as a result of a non-compliant participating employer should be eliminated, and recommended that non-discrimination testing be eliminated.
To supplement Kalamarides’ testimony, Prudential submitted a white paper entitled Leveraging Multiple Employer Plans to close the Retirement Coverage Gap.
During the question and answer portion Corker expressed his support for MEPs.
More information about the hearing can be found here.