September 4, 2018

401(k): Coverage Under 401(K) Plans Expanding?

President Trump Issues Executive Order Aimed at Expanding Coverage under 401(k) Plans

On August 31, 2018, President Trump signed an executive order (“Order”) aimed to jump-start efforts to expand coverage under 401(k) plans.  The Order directs the U.S. Departments of Treasury and Labor to consider revising existing regulations in an attempt to make it easier for small businesses to offer 401(k) plans to their employees, and to make it easier for retirees to keep savings in their 401(k) plans and individual retirement accounts (“IRAs”).

The Order appears to side-step Congress, which has continually failed to move on legislation that would create “multiple employer retirement plans,” or MEPs.  Generally stated, MEPs would permit unrelated companies to jointly offer 401(k) plans, which would enable small companies that would like to set up such plans, but lack the resources needed to shoulder the considerable administrative costs.  Because of the complexity and costs, many small businesses are not able to offer 401(k) plans on their own.  With MEPs, multiple companies could rely on a single plan document and one set of plan-related paperwork (governmental filings, etc.), allowing the sponsoring companies to pool many of the administrative expenses.

The Order also directs the U.S. Treasury Department to consider repealing the current rule that prevents individuals who have attained age 70 –½ from contributing to 401(k) plans and IRAs.

Though it is questionable whether all of this can be accomplished in the absence of Congressional action to amend the underlying Internal Revenue Code and ERISA provisions, Industry officials are hopeful that the Order will spur passage of the Retirement Enhancement and Savings Act of 2018 (“RESA”) bill that was introduced in the Senate Finance Committee earlier this year, and which has bipartisan support.  Similar legislation was proposed in 2016.

Although we have so far been skeptical as to whether 401(k) reform can happen this close to the midterm elections, the President’s executive Order could change things.  As always, we will continue to monitor this situation and keep you advised.

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