Practice Management
A group that generally advocates for large multistate employers has put forward a series of proposals that seek to help strengthen and streamline the administration of DC plans.
In a March 4 briefing on Capitol Hill, the ERISA Industry Committee (ERIC), along with representatives from ManTech International Corporation and Fidelity Investments, unveiled a 17-page proposal that calls for updating the rules to reflect changes in the workplace.
ERIC President and CEO Annette Guarisco Fildes noted that ERIC strongly supported the SECURE Act, but emphasized that the organization believes legislation is still needed. “The 401(k) is no longer a supplemental retirement plan for most people; for most employees it’s their only retirement vehicle. And it wasn’t designed originally to be that way,” Guarisco Fildes stated. She further explained how corporate structures have changed, as well as the nature of the workforce, with gig economy workers and employees not staying in the same job for their entire careers.
“Modernizing the DC/401(k) Plan System” contains more than 20 individual proposals, including:
- modifying the definition of highly compensated employees (HCEs) for purposes of nondiscrimination testing;
- expanding safe harbor auto-enrollment/auto-escalation designs;
- allowing DC plans to permit participants to withdraw or use limited, pre-tax deferrals for short-term financial needs;
- allowing employer contributions that match student loan payments;
- promoting electronic delivery of plan communications; and
- clarifying fiduciary rules applicable to ESG investments.
While some proposals were addressed in the SECURE Act, others have been proposed previously by Rep. Richard Neal, Chairman of the House Ways and Means Committee, as well as by Sens. Rob Portman (R-OH) and Ben Cardin (D-MD). Still others have been put forward by various other members of Congress.
Student Loan Debt
Alice Joe, Vice President of Government Relations for Fidelity Investments, highlighted the company’s student loan debt program in advocating for legislation that allows employer contributions that match student loan payments. “Student debt is what’s keeping our employees awake at night; they can’t buy a house or save for retirement. It’s the number one issue that they face,” Joe stated.
She explained how current estimates show there is $1.5 trillion in student loan debt outstanding and 44 million Americans have some form of this debt outstanding, and it’s not just Millennials who have it, as Baby Boomers make up 20% of those with student loan debt. As a result, Joe noted, many employees may be limited in their ability to contribute to a 401(k) plan and are missing out on matching contributions. And while the IRS Private Letter Ruling https://www.napa-net.org/news-info/daily-news/irs-okays-amending-401k-pl... was helpful, she stressed that it only applies to one company, so other companies are not able to rely on that PLR.
To that end, ERIC and other trade groups—including the American Retirement Association—have called on Congress to allow employers to make contributions to 401(k) plans that match a participant’s qualified student loan payments. This issue continues to receive significant attention on Capitol Hill, including bipartisan legislation that would allow employers to provide tax-free student loan assistance for their employees.
Emergency Savings
This is another big issue that could help address short-term financial needs, while also resulting in improved retirement outcomes, according to Aliya Robinson, ERIC’s Senior Vice President for
Retirement and Compensation Policy.
The proposal calls for allowing 401(k) plans to permit participants to withdraw or use pre-tax elective deferrals without the early distribution tax penalty to take care of short-term financial needs, such as for hardship, student loans or rainy-day funds. Amounts withdrawn would not cause the plan to violate any applicable ADP/ACP test safe harbor. In addition, it would not be necessary for the plan to maintain separate accounts under this proposal.
An additional option would be to allow cafeteria plans to offer participants additional pre-tax benefit options, including student loan repayment, disability insurance, long-term care insurance, longevity insurance, and retirement planning services.
HCE Definition
An issue important to ManTech International, according to Senior Corporate Counsel Rebecca Signer Roche, is updating the definition HCE for nondiscrimination testing purposes. Signer Roche explained how it’s important for companies like ManTech to attract and retain IT professionals with advanced IT skills, but in today’s market, the demand for IT professionals far exceeds the supply. “As a result of this gap, IT professionals now command salaries that now meet or exceed the definition of highly compensated employees, even for those just out of college,” Signer Roche stated.
As a result, she noted that it’s becoming increasingly difficult under the current one-size-fits-all definition to pass nondiscrimination testing. To address these situations, ERIC’s proposes that an employer be permitted to limit the employees earning over the annual compensation HCE threshold who are treated as HCEs for the current year to the top-paid 10% group of employees by compensation.
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