As was foreshadowed in President Obama’s last State of the Union Address, retirement policy gets considerable attention in the White House’s fiscal year 2017 budget, released today.
Familiar initiatives that Congress previously has refused to fund, like a nearly comprehensive mandate that small employers auto-enroll workers in IRAs, again appears in President Obama’s budget, as it has in his seven previous budget proposals.
But this year’s budget also includes new, specific retirement policy initiatives, including the creation of “open” multiple employer plans, a call for the Pension Benefit Guaranty Corporation to raise premiums for troubled multiemployer plans while keeping premiums in PBGC’s single-employer plan flat, and $6.5 million in money for pilot state-run 401(k) plans.
The president’s support for “open” multiemployer plans, which would allow more small businesses to form MEPs by removing the “common bond” requirement previously mandated by the Department of Labor, has met with bipartisan backing from lawmakers and seemingly universal support from industry and retirement experts.
Open MEPs allow small businesses with fewer than 100 employees to pool participants and assets with other employers, giving them greater scale, thereby driving fees down.
They also alleviate the regulatory burden on an employer if it were to sponsor a plan on its own. An open MEP has one annual Form 5500 filing and one annual audit, as opposed to each individual employer filing their own papers.
Numerous bi-partisan legislation in both chambers of Congress have called on regulators to make open MEPs more accommodating by removing the common bond requirement, which says employers must share a similar business structure, or be part of the a trade organization, to form a MEP.
Bob Collie, chief research strategist at Russell Investments, suggested “A well-regulated open MEP system may well offer real potential to efficiently expand retirement saving,” according to a blog he posted in the wake of the White House’s release of the budget proposal.
And Lew Minsky, CEO of the Defined Contribution Institutional Investment Association, said “The proposal to enable employers to bring institutional approaches to their employees through participation in MEPs presents a real opportunity to expand access to retirement savings plans without sacrificing adequacy.”
The President’s budget proposal notes that about half of workers in small businesses with fewer than 50 employees have access to a workplace savings plan, and that fewer than 10 percent of workers without access to a plan contribute to an IRA on their own.
But at least one retirement expert, while supportive of open MEPs, doubts their impact on overall participation rates will be consequential.
In a recent Senate Finance Committee hearing on retirement policy, Alicia Munnell, director of Boston College’s Center for Retirement Research, called open MEPs a potentially “useful tool,” but said that policy, along with others offered by a Finance Committee working group, including expanding tax incentives for small businesses that sponsor plans, should not be expected to significantly inspire small employers’ wider adoption of retirement plans.
She was also ambivalent on the trend at the state level to implement mandatory retirement plans, which has the backing of both the White House and the Department of Labor.
Instead, Munnell called for bolder policy at the federal level to mandate IRA enrollment.
The President’s budget does that, of course, as have all of his other budget proposals.
But calls for mandatory IRA enrollment have so far found little traction in Congress.
The President’s auto-IRA proposal would provide employers with 100 or fewer workers a tax credit up $6,000. Under the current SIMPLE IRA structure, employers benefit from a $500 annual credit for up to three years.
The new budget also proposes that employers that already offer a plan and add an automatic enrollment feature would be incentivized with a $1,500 tax credit.
The budget also proposes to require sponsors to offer access to savings plans for part-time workers with 500 hours of service per year for three consecutive years.
It would also allow the long-term unemployed to withdraw up to $50,000 a year for two years from qualified savings accounts without being penalized.
Relative to PBGC premiums, the President’s budget would freeze additional premium increases in the agency’s single-employer insurance plan, but would authorize PBGC to assess $15 billion in new premium increases to the Multiemployer insurance plan.
That would delay the multiemployer program’s impending insolvency, which PBGC predicts by 2024, for another 20 years, according to the budget proposal.