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ARA Washington Update Highlights Busy Times

Inside ASPPA

In the Fourth Quarter 2018 Washington Update, American Retirement Association Director of Technical Education Robert Kaplan provided an overview of recent executive, regulatory and legislative developments affecting retirement plans.

MEPs

Kaplan highlighted the attention President Trump’s Aug. 31 Executive Order pays to multiple employer plans (MEPs), noting that the order directs the Department of Labor (DOL) and the IRS to examine their polices on MEPs with the goal of clarifying and expanding usage, eliminating the one-bad-apple rule, and focusing on part time and gig workers, sole props and small employers.

Kaplan put special focus on the order’s provisions concerning the one-bad-apple rule, which he said to him was “the biggest negative of MEPs.” Under the rule, he noted, if one plan makes an effort, it “really affects the MEP as a whole,” while if the rule is eliminated, if one plan makes a mistake, it is the only one that is affected; the rest of the constituent plans would not be. And, he said, elimination of the rule would increase the use of MEPs.

The DOL issued a proposal on Oct. 22, Kaplan noted. Among its provisions, he reported, are that:

  • associations could “stand in” for the employer;
  • self-employed individuals could join an MEP;
  • PEOs could participate in MEP with employers with which they work on HR functions;
  • plan sponsors could be named fiduciary; and
  • adopting employers would still be fiduciaries for selection, monitoring and making contributions on a timely basis. “This is very important to us at the ARA,” Kaplan said.

Kaplan added a caveat about the DOL proposal, however: “Let me emphasize,” he said, that “we can’t rely on” proposed rules.

Kaplan noted that the IRS has the one-bad-apple rule on its regulatory agenda for April 2019.

Hardship Rule Changes

The Bipartisan Budget Act of 2018, enacted on Feb. 9, 2018, includes provisions relevant to the rules for taking loans from retirement plans due to certain hardships, Kaplan noted, including:

  • No requirement to take loans before a hardship
  • No need to suspend deferrals for six months
  • Hardship loan sources now available include deferral earnings, QNECs, QMACs and safe harbor 401(k)s

Nonetheless, there still are questions to be answered, Kaplan noted. These include how 403(b)s figure under the law, whether the rules are mandatory or optional, and what happens on Jan. 1 if a participant takes a hardship loan in December but the participant is then suspended for deferring.

Mid-Term Aftermath

The mid-term elections have come and gone, and the results will affect retirement plans. Among the consequences of the Democrats taking over control of the House of Representatives is that the leadership of the Ways & Means Committee will change; Rep. Richard Neal (D-MA) is expected to assume that role.

Neal becoming chairman will have direct implications for retirement plans, Kaplan indicated. Of Neal, Kaplan said, “To him, retirement plans are a priority, expanding coverage is a priority, easing administration is a priority.” Still, the mere fact of Neal being presumptive chairman does not necessarily mean instant action. “Just because Neal will be taking over Ways & Means, we’re still far away from getting something enacted,” Kaplan cautioned.

This is because legislation still pending when this session of Congress ends will die, and must be reintroduced in the session that will begin in January for them to be considered and possibly enacted. But Kaplan expects that at least some of those measures will be. “You can be sure,” he said, that “bills he [Neal] has introduced will be reintroduced.”

Among those measures, Kaplan said, is the Automatic Retirement Plan Act, which includes a mandate — it would require that employers sponsor either a 401(k) or a 403(b) plan. Its provisions also include:

  • there would be some exceptions: employers with fewer than 10 employees, churches, governments and employers that have existed for three years or less;
  • elimination of the one-bad-apple” rule;
  • relieving small employers of all fiduciary responsibility concerning MEPs; and
  • increasing the tax credit for implementing a plan.

Of this bill, Kaplan said, “it’s a starting point for discussion.”

Another pending measure that Kaplan discussed is the Family Savings Act, along with its “Sister in the Senate, RESA.” This legislation, he said, “is all very helpful to the individual,” adding, “anything they can do to educate and alert is a good thing.” 

At Your Service

The Oval Office and Capitol Hill are not the only places in Washington where things are happening that affect retirement plans, and Kaplan outlined some of the recent IRS activities that have an impact. Among them: the IRS extension of pre-approved plan documents to Dec. 31, changes to the submission process for the Employee Plans Compliance Resolutions System (EPCRS), and a variety of forms of regulation and guidance that are on its “to do” list of priorities for 2019. And not to be outdone, Kaplan notes that the DOL also has set priorities that would affect retirement plans, including updating the fiduciary rule. “This whole thing about fiduciary responsibility is not going away,” he said.

Student loans are another area the IRS has addressed, Kaplan noted, having issued private letter ruling (PLR) 201833012, in which the IRS ruled that for Abbott Laboratories, which brought the particular matter to the IRS in the PLR, the firm’s proposal to amend its 401(k) plan to provide student loan repayment nonelective contributions will not violate the “contingent benefit” prohibition under the Internal Revenue Code and the Treasury regulations that implement it. However, Kaplan included an important caveat: “Legally, this guidance can only be relied on in court by Abbott Laboratories,” he said. However, he said, the IRS “issued the ruling publicly to show what it is thinking.”