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Open MEPs, Fiduciary Delay Dominate Hearing

A congressional hearing on “Regulatory Barriers Facing Workers and Families Saving for Retirement” ran the gamut from the fiduciary regulation to multiple employer plans to state-run programs.

The hearing, by the House Education and Workforce Committee’s Subcommittee on Health, Employment, Labor & Pensions (HELP), heard from four witnesses on a handful of retirement topics, and in the process showcased that partisan differences have only calcified in the 115th Congress.

Fiduciary ‘Obligations’

Among the four witnesses, three were clear opponents of the Obama-era fiduciary rule as written. Most notably, Bradford Campbell, the former Assistant Secretary of Labor and head of the Employee Benefits Security Administration (EBSA) under President George W. Bush, testified that the “concept” of the rule is fine, but “the execution is the problem.” He asserted that “enforcement by litigation is the most inefficient means possible” and that an uptick in investors without advisors is already happening as a result of its promulgation.
  

Campbell opined in both his written testimony and his answers to the panel’s questions that the DOL should further delay the applicability date of the rule beyond the already-extended deadline of June 9 in order to examine the rule’s full impact, an opinion that was repeatedly echoed by the Republicans on the panel, and in the subcommittee’s press release after the hearing.

On the other side of the issue, Dr. Jason Furman, Ph.D., who previously served as the chair of the Council of Economic Advisers for President Obama, was asked by Rep. Marcia Fudge (D-OH) why the fiduciary rule is “winning in the courts if it’s supposedly so flawed, and what are the ramifications if it doesn’t go forward?” He stated that the consultation process for the rule was more extensive than anything he witnessed in his years in the Obama administration. As for ramifications of repeal, he noted that many of the costs of complying with the rule have already been borne by financial institutions, so those costs would be forever sunk “with no benefit to anyone.”

Opening Up MEPs

Subcommittee Chairman Tim Walberg (R-MI) also used the hearing as an opportunity to promote the concept of “open MEPs” to tackle the issue of retirement plan coverage. One major barrier to allowing more employers to pool their employees together in a single 401(k) plan is the requirement that the employers have a “common nexus.” James Kais, senior vice president and managing director at Transamerica, said removing that requirement would dramatically grow the number of small businesses offering plans.

Another barrier Kais promoted removing from the MEP design is the “One Bad Apple” rule. “Compliant employers in a MEP should be protected from liability for the non-compliant acts and omissions of other employers in the MEP and the resulting disqualification of the entire plan” by the IRS, he testified.

Kais pointed to a statistic from the Transamerica Center for Retirement Studies that says 89% of Americans offered a plan through their work choose to save versus only 47% of workers who are not offered such a plan. He asserted that taking these two barriers off the table would go a long way to lowering the number of Americans not covered.

State-Run Auto-IRA Plans

Erik Sossa, vice president of global benefits and wellness at PepsiCo, Inc. testified on behalf of the ERISA Industry Committee (ERIC). He stressed that ERISA’s federal preemption of state laws is important because it allows large companies like his to offer benefits “uniformly” across a national workforce, rather than maneuver through a complicated, state-by-state “patchwork” of different additional requirements for different employees.

He testified that the DOL’s late 2016 regulations providing a safe harbor from ERISA for state and municipal governments operating auto-IRAs for private sector employees — which the 115th Congress has since repealed and President Trump just signed into law — would have posed “a risk that unnecessary cost and compliance burdens will be imposed on employer-sponsored plans without commensurate benefits to employees.”

Rep. Suzanne Bonamici (D-OR) used the line of discussion on state-run plans to tout her intention to introduce in the House a companion to the Senate’s Preserve Rights of States and Political Subdivisions to Encourage Retirement Savings (PROSPERS) Act, introduced on May 3. That bill would codify the effects of the DOL’s now-overturned rules, allowing states and municipalities to operate such plans outside of ERISA after all. In doing so, Bonamici boasted her bill quite literally would be “removing barriers.”

Ray Harmon, Esq. is government affairs counsel for the American Retirement Association.