The Department of Labor issued an interpretive bulletin Monday on open multiple-employer retirement plans, making it easier for states to run these types of plans.
Open MEPs, which enable employers from different industries to come together to offer a retirement plan to their workers, have been championed by groups such as the U.S. Chamber of Commerce, AARP and the American Benefits Council, who say these types of plans can be a viable alternative for employers that don’t want to sponsor their own 401(k) plans.
There had been a lot of confusion about how open MEPs could work, says Michael Kreps, a principal with Groom Law Group in Washington, D.C., and the DOL’s bulletin clears some of that up by saying states can run these open MEPs, which will be subject to ERISA. “That’s a new direction for the DOL,” says Kreps.
Prior to the interpretive bulletin, employers from different industries within a state were prohibited from participating in a MEP under what’s known as commonality-of-interest requirements.
“This is definitely a break for the DOL in terms of where they’ve been in the past on open MEPs and we’re already hearing concern from some financial-institution clients about the lack of consistency across the public and private sectors,” says Kreps.
“This interpretive bulletin provides helpful guidance that will allow states to sponsor MEPs,” said Bennett Kleinberg, VP of institutional investment solutions for Prudential Financial in a statement, while adding that “additional steps are needed. To provide a more complete solution to the retirement coverage gap for all 55 million small-business workers, Congress needs to pass open MEP legislation.”
The DOL has also issued a proposed regulation clarifying that state-run automatic IRAs offered to private-sector employers are not covered by ERISA. California, Illinois and Oregon require certain employers that don't offer a retirement plan to automatically enroll workers in a payroll-deducted IRA and up to two dozen other states are considering similar reforms, says Kreps.
“The proposed regulation is intended to make it less likely that a court would find those state automatic IRAs pre-empted by ERISA,” says Kreps. “There had been some concerns that the automatic features made them ERISA plans but what the DOL is saying here is if you have one of these state-run IRA deduction plans that you put people into, provided it meets certain conditions, that payroll-deduction IRA will not be covered by ERISA.”
Employers currently offering a 401(k) plan aren’t likely to be affected by the interpretive bulletin and proposed regulation. The guidance will, however, “encourage states to do private-sector reforms,” says Kreps. “There are about two dozen states right now considering reforms. This will encourage more to move down that path.”
For employers that operate across state lines, however, “they may be subject to one or more of these laws and each one is shaping up to be a little different so it’s not entirely clear [how that will play out],” says Kreps.
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