Washington Pulse

Washington Pulse: Finally Final: Court’s Mandate Terminates DOL Fiduciary Guidance

The U.S. Fifth Circuit Court of Appeals has finally made it official: the 2016 Department of Labor (DOL) fiduciary investment advice final regulations and accompanying guidance are repealed. On June 21, 2018, the Fifth Circuit issued the formal mandate that implements its March 2018 ruling “vacating” (i.e., making null and void) this much-contested guidance, whose purpose was to provide retirement savers with greater protection from conflicted and potentially exploitive investment advice. Attempts during the March-to-June interval to appeal the Fifth Circuit’s ruling and save the fiduciary guidance ultimately proved unsuccessful.

It is not completely clear what this outcome will mean for investment advisors and advisory firms in their future relationships with retirement savers. DOL regulations dating back to 1975—intended for replacement by the now-repealed 2016 guidance—may once again provide the standard that determines fiduciary status. 1996 and 2005 DOL sub-regulatory guidance may also shed additional light. It is hoped that the DOL will release formal guidance soon in order to provide greater clarity regarding future investment fiduciary standards.

How the DOL Investment Fiduciary Guidance Was Defeated

Several earlier District Court challenges to the fiduciary guidance ended with multiple lower courts all upholding it. One of these was a Texas District Court decision, which was appealed to the Fifth Circuit Court of Appeals. There the fiduciary guidance suffered its first defeat. Perhaps more important, the Fifth Circuit’s March ruling had sufficient authority to vacate “in toto” the final regulations and several accompanying prohibited transaction exemption (PTE) components. All were eliminated, in all legal jurisdictions nationwide. The Fifth Circuit judge writing for the majority rebuked the DOL for over-stepping its authority in issuing the 2016 guidance.

The Fifth Circuit’s decision was not unanimous. The three-judge Fifth Circuit panel (the full Fifth Circuit Court of Appeals has nine members) that rendered the decision was split 2-1. Had this ruling occurred during the Obama administration, with the same DOL leadership that had issued the guidance, the loss would in all probability have been appealed. With the Trump administration and its new DOL leadership committed to revising or withdrawing the guidance, the Fifth Circuit’s ruling was welcomed by the DOL, rather than challenged. Others—including the states of California, Oregon, and New York, in concert with the American Association of Retired Persons (AARP)—sought standing to appeal, but were denied. The ultimate deadline of June 13, 2018, for a DOL appeal to the Supreme Court passed as expected, and eight days later came the Fifth Circuit mandate that sealed the fiduciary guidance’s fate.

What Happens Next?

Over the slightly more than two years since the DOL investment fiduciary final regulations and exemptions were issued in April 2016, many financial organizations and investment advisors have made changes to their business models, compensation practices, and investment lineups to comply with new rules. Some even acknowledged fiduciary status as part of the new compliance regime. Will these changes be modified or reversed?  Can a firm or advisor disclaim a fiduciary role after having embraced it?  Does any DOL guidance issued from 2016 to the present have continued purpose or bearing on investment advising relationships?

Other DOL Investment Fiduciary Guidance; More is Needed 

Financial organizations, investment advisors, and service providers who serve them are wondering what past guidance can—or should—be relied on now that the 2016 final regulations and accompanying PTEs have become invalid. Possibilities include the following.

  • The DOL 1975 regulations specified a five-part test to determine if investment advice is fiduciary in nature, but generally apply only to advising that is associated with employer-sponsored retirement plans, not IRAs.
  • Interpretive Bulletin (IB) 96-1 clarified what constitutes investment information versus investment advice. IB 96-1 describes safe harbors to help employers guard against unintentionally providing information that could be construed as investment advice.
  • DOL Advisory Opinion 2005-23A addressed limited circumstances in which a person who is already a fiduciary to an employer-sponsored retirement plan could become an investment fiduciary when plan assets are rolled over from the plan to an IRA. According to this 2005 guidance, an individual who is not already a plan fiduciary may provide IRA rollover advice without becoming an investment fiduciary.
  • DOL Field Assistance Bulletin (FAB) 2018-02 was written after the Fifth Circuit’s March ruling vacating the final investment fiduciary regulations and exemptions. Anticipating this guidance to be eliminated, FAB 2018-02 provided for a transition period during which relaxed impartial conduct standards are to apply, accompanied by lenient enforcement. The impartial conduct standards require that those who provide investment advice for a fee
  • make no misleading statements,
  • receive only reasonable compensation, and
  • act in a client’s best interest.

FAB 2018-02 states that these standards are to apply “until after regulations or exemptions or other administrative guidance has been issued.”

The DOL has remained silent following the Fifth Circuit’s June 21, 2018, mandate officially invalidating the investment fiduciary guidance. Within the investment advisory and retirement industries it is widely hoped that the DOL will soon release more definitive guidance, providing greater clarity and assurance regarding the agency’s investment fiduciary standards and compliance expectations.

Proposed SEC Fiduciary Guidance

As the fate of the DOL investment fiduciary guidance was being determined in the judicial system, the Securities and Exchange Commission (SEC) in April issued proposed guidance for broker-dealers and registered investment advisors who make recommendations to retail clients. The agency did so eight years after the Dodd-Frank Wall Street Reform and Consumer Protection Act gave the agency a directive to consider issuing standards of conduct for investment recommendations.

The proposed rules generally do not apply to banks or credit unions unless they are (or own) a broker-dealer or a registered investment advisor. The rules do appear to cover individual plan participants receiving direct investment recommendations, but exclude employer plans per se as a business exception. The guidance is also believed to cover investors in individual tax-advantaged accounts, such as IRAs, health savings accounts, and education savings accounts, but only for securities investments, which greatly limits the reach of this SEC guidance. The proposed SEC package contains three items.

  1. A “Regulation Best Interest” for broker-dealers
  2. A rule requiring disclosure of the nature of the advising relationship (fiduciary or not), and restraints on use of the term “advisor”
  3. Clarifications on fiduciary standards applicable to investment advisors

Although the full impact of the SEC proposed guidance is undetermined at this time, the SEC has indicated that the final guidance will generally include advice given to retirement savers who are invested in securities and are receiving investment advice from broker-dealers or registered investment advisors. The SEC is accepting public comments for a 90-day period, which began on May 9, 2018.

Still unknown at this time is the extent to which there will be coordination—and hopefully commonality—between the SEC and DOL guidance that will ultimately govern investment advising relationships.

NOTE: See SEC Best Interest Standard is Major Departure from DOL Fiduciary Guidance, for more information on the proposed SEC guidance or visit www.ascensus.com for the latest developments.

Washington Pulse: Bill Would Create Commission to Advise Congress on Retirement Issues

Senators Todd Young (R-IN) and Cory Booker (D-NJ) have introduced the Commission on Retirement Security Act of 2018. The bill’s purpose is to create a commission that would study Americans’ retirement security, including private retirement programs, and make recommendations to Congress on how to improve it. The Commission would be expected to complete a review and report to Congress not later than two years after the Commission is established. Public input through hearings and testimony could be sought by the Commission during this period.

While many bills are never enacted and little legislation is expected to pass before November’s mid-term election, this bill may eventually have a greater chance of advancing because it has bipartisan support and comes on the heels of a 12-year period of increased legislative activity aimed at enhancing retirement security. Further, following a 40-year transition from traditional pensions (defined benefit plans) to defined contribution plans, U.S. citizens are expected to prudently plan for their own retirement security through personal savings, retirement savings programs like IRAs and 401(k) plans, and Social Security.

Commission Goals

The bill would require a comprehensive review of private retirement plans and would not include Social Security. The Commission would be tasked with a comprehensive review of the following.

  • Existing U.S. retirement savings vehicles
  • Private retirement coverage, investment trends, retirement account balances, costs and net returns, retirement savings retention, and distribution activities
  • Social trends, such as wage and economic growth, health care costs, and increasing life expectancy that could lead to less retirement security
  • Retirement programs in other countries

If a three-quarter majority vote of the Commission is received, the Commission would be required to submit a report to the President and Congress of its findings along with its recommendations for legislative or administrative actions regarding how to improve or replace existing private retirement programs.

Commission Appointees

The bill, if enacted, would establish the Commission on Retirement Security, which would be made up of 15 members.

  • The Secretaries of Labor, Treasury, and Commerce
  • 12 appointed individuals who generally have expertise in such matters as retirement security, economics, aging, benefits, pension plan design, finance, the workforce, and labor unions.

Retirement Savings Challenges

As announced in a press release, Senators Young and Booker believe that America’s private retirement system faces major challenges and too many households are unprepared for retirement. A noted challenge is that the economy is undergoing a shift towards a “gig economy,” which may make it harder for individuals to save for retirement. In a gig economy, temporary and flexible jobs are more commonplace, and companies tend to hire more independent contractors and freelancers.

Senator Young states, “With many individuals reaching retirement with little to no savings of their own, we must take a serious look at our current retirement programs and make the changes necessary to help secure the futures of so many hardworking Americans. Our bill would enact a commission to better understand how we can strengthen private benefit programs and ensure our current and future generations have the tools necessary to plan for retirement.”

No schedule for committee consideration of the legislation has been announced. Visit www.ascensus.com and subscribe to the Industry and Regulatory news feed for the latest developments.

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Washington Pulse: SEC Best Interest Standard is Major Departure from DOL Fiduciary Guidance

Eight years after receiving a directive from Congress to consider standards of conduct for investment recommendations, the Securities and Exchange Commission (SEC) has issued proposed guidance for broker-dealers and registered investment advisors who make recommendations to retail clients. Unlike the DOL fiduciary regulations, the guidance applies only to securities; not to traditional bank, credit union, and insurance investment products. Many had hoped for a uniform standard for brokers and registered investment advisors (RIAs), however this guidance does not take that approach.


Who will regulate investment advising behavior?

This SEC guidance comes at a time of uncertainty for oversight of investment advising relationships. After the U.S. Department of Labor (DOL) issued final regulations on fiduciary investment advice for retirement savers, a court case recently resulted in a finding that the DOL exceeded its authority. Unless the DOL or another party successfully appeals, the DOL’s guidance will be nullified. This would leave the SEC regulations—if finalized—as the standard for broker-dealers who make investment recommendations.


What is in the guidance package?

The SEC has issued two proposed regulations and a proposed interpretation.


SEC Best Interest Standard ≠ DOL Best Interest Contract

The SEC’s proposed “regulation best interest” is not the same as the legally-enforceable “best interest contract” (BIC) in the DOL fiduciary investment advice regulations. Instead, the SEC’s best interest standard would be enforceable under its current arbitration framework. To satisfy the proposed SEC guidance, a broker-dealer must “act in the best interest of the retail customer” when a recommendation is made, and not put his own financial or other interest ahead of the customer. Broker-dealers can accomplish this by meeting the following conditions.


Disclosure Obligation

  • Disclose the nature of the broker-dealer/client relationship (which for brokers is not a fiduciary relationship, as it is for RIAs), and any material conflicts-of-interest—including financial incentives that might cause a broker-dealer to put his interests ahead of the customer’s.


Care Obligation

Exercising reasonable diligence, care, skill and prudence to:

-Understand the investment product recommended to a customer
-Determine that this recommendation could be in the interest of some customer
-Determine that a recommendation is in a particular customer’s best interest based on her investment profile
-Determine that a proposed series of transactions is also in that customer’s best interest based on her investment profile


Conflict of Interest: Disclosure, Mitigation, and Elimination

Establish, maintain, and enforce written policies and procedures to identify material conflicts-of-interest due to financial incentives tied to investments and either disclose and mitigate such conflicts, or eliminate them.


Contents of the Customer Relationship Summary

While the SEC guidance is primarily directed to broker-dealers and the securities recommendations they make, a new disclosure requirement applies to both broker-dealers and RIAs. These regulations would require both to make clear their roles in a brief “customer relationship summary” (CRS) form that includes

  • an introduction highlighting the types of investment services and accounts offered to retail investors
  • a description of the relationships and services a firm offers to retail investors, including the legal standards of conduct to be expected (e.g., RIAs are fiduciaries, broker dealers are not)
  • a description of the fees and costs a retail investor would pay the firm
  • a comparison of brokerage and RIA services (for firms that are one or the other, but not both)
  • a description of the conflicts-of-interest that may exist, including compensation that differs based on investments chosen.
  • how a customer can get additional information, including legal and disciplinary actions involving the firm or representative.
  • key questions a retail investor may want to ask for greater detail about services, specific fees, etc.

In general, the SEC advises representatives to be direct and clear about their status as a broker-dealer or RIA—or dual status—and to refrain from using language or terms formally or informally that may mislead a customer. Form CRS must be filed electronically with the SEC.


Fiduciary standard clarifications

While the fiduciary standard is not new for registered investment advisors, the SEC has never before formally included “best interest” obligations as part of their interpretation of the fiduciary obligations for RIAs. They define the prongs of the fiduciary standard of conduct to include:

  • Duty of Care
    • Duty to provide advice that is in the client’s best interest
    • Duty to seek best execution
    • Duty to provide services and to provide advice and monitoring over the course of the relationship
  • Duty of Loyalty
    • Duty to put its client’s interests first and not favor one client over another
    • Duty to make full and fair disclosure of all material facts relating to its relationship with its client
    • Duty to seek to avoid conflicts of interest and, at a minimum, disclose all material conflicts


Who is covered by the SEC guidance?

Unlike the DOL’s fiduciary investment advice regulations, the SEC broadens the pool of investors captured by its new investor protection rules. The SEC’s proposed regulations are not specific to retirement savers but instead cover the general retail investor.

The SEC guidance, however, also narrows the pool of investment recommendation providers covered by the guidance as its new rules only apply to broker-dealers and registered investment advisors. The guidance does not generally apply to personnel of banking or insurance organizations.


Which activities fall under the SEC guidance?

The three components address activities with respect to securities investments, such as stocks, bonds, and mutual funds, for retail clients. This includes the purchase, sale, or holding of such investments. By comparison, the DOL fiduciary rules apply to a broader class of investments than just securities. The DOL rule includes investments in certificates of deposit and certain insurance products that are not governed by the SEC framework.

While the SEC guidance is somewhat ambiguous, it appears to cover retirement plan participants receiving direct investment recommendations but exclude employer plans as a business exception. The guidance also appears to cover investors in individual tax-advantaged accounts such as IRAs, health savings accounts, and education savings accounts.

Clarifications on these and certain other issues are being sought.


More to come

The SEC requests comments from the public on this guidance, during a 90-day period. Based on public comments made by SEC commissioners, these SEC proposed regulations and disclosure guidelines could be just the first elements of more comprehensive guidance from the agency on investment advising relationships.  If true, more guidance may be forthcoming. Visit ascensus.com and subscribe to our Industry and Regulatory news feed for the latest developments.


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Washington Pulse: RESA’s Return May be Departing Senator’s Gift to Retirement Readiness

Bipartisan legislation proposing many changes to IRAs and employer-sponsored retirement plans has been introduced by Senate Finance Committee Chairman Orrin Hatch (R-UT) and Committee Ranking Member Ron Wyden (D-OR). The Retirement Enhancement and Savings Act (RESA) of 2018 is very similar to a bill approved unanimously by the Senate Finance Committee in 2016, but not considered by the full Senate. With Senator Hatch leaving Congress, there may be an urgency to enact some form of this legislation. A companion bill was also recently introduced in the House of Representatives and is being reviewed to determine if there are any differences between the two. A general summary of the Senate bill is provided below.

Incentives to Establish or Enhance Employer Plans

Many of RESA’s provisions are intended to make it less complicated and less expensive to establish a plan and to reduce fiduciary exposure for employers establishing a retirement plan. To accomplish these objectives, RESA would

  • enhance an employer’s ability to participate in a multiple employer plan, or MEP (the new but equivalent term “pooled employer plan” is coined by RESA). This would allow sharing of administrative responsibility, expense, and liability. RESA would eliminate the current requirement that participating employers have common purpose or ownership (effective for 2022 and later years);
  • allow an employer to establish a plan (e.g., a pension plan or profit sharing plan) by its business tax filing deadline, including extensions. Current rules require employers to establish a plan by the last day of their business year. The extension would not apply to certain plan provisions, such as elective deferrals (effective for taxable years beginning after 12/31/2018);
  • increase the maximum small employer retirement plan start-up tax credit from $500 to up to $5,000 per year, available for three years (effective for taxable years beginning after 12/31/2018);
  • provide a $500 per year tax credit for up to three years, beginning with the first year a 401(k) plan or SIMPLE IRA plan includes an automatic enrollment feature (effective for taxable years beginning after 12/31/2018);
  • allow employers up to 30 days before the end of a plan year to elect a 401(k) safe harbor plan provision without providing a pre-plan year notice if they make a three percent nonelective safe harbor contribution. Employers making a four percent nonelective safe harbor contribution would have until the deadline for removing excess contributions for such year to elect a safe harbor provision (effective for plan years beginning after 12/31/2018);
  • specify a fiduciary safe harbor for plans offering lifetime income investment options in order to offer employers greater protection from fiduciary liability for investment provider selection (effective date is not specified in the bill text); and
  • provide nondiscrimination testing relief for defined benefit pension plans that are closed to new participants; generally such employers offer a defined contribution plan as an alternative for new employees (effective for plan years beginning after 12/31/2013, if the plan sponsor elects).

Enabling Participants to Save More

RESA includes provisions intended to lead to greater saving by retirement plan participants. To accomplish this objective, RESA would

  • eliminate the current 10 percent deferral limitation for plans with qualified automatic contribution arrangements (effective for plan years beginning after 12/31/2018), and
  • require defined contribution plan benefit statements to include a lifetime income estimate at least once every 12 months (effective for statements provided more than 12 months after issuance of guidance by the Secretary of the Treasury).

Provisions Affecting IRAs and Employer Plans

Some provisions would affect participants or beneficiaries of both employer plans and IRAs, or would in some manner connect an employer plan and an IRA. These include provisions that would

  • require nonspouse beneficiaries of IRAs and employer plans to withdraw amounts that together exceed $450,000 within five years. Exceptions to this rule—allowing certain beneficiaries to distribute and be taxed over their life expectancy—would include the disabled, the chronically ill, and a beneficiary who is no more than 10 years younger than the participant. Minors would begin their required five-year distribution period upon reaching the age of majority (generally effective for payouts as a consequence of deaths after 12/31/2018);
  • treat custodial accounts of terminated 403(b) plans as IRAs, as of the termination date (effective for terminations after 12/31/2018); and
  • allow plan participants invested in lifetime income investments to roll over the investments to an IRA or to another retirement plan if a plan is no longer authorized to hold such investments (effective for plan years beginning after 12/31/2018).

IRA provisions

A limited number of RESA’s provisions would affect only IRAs, and would enhance either contribution or investment options. These provisions would

  • eliminate the end of Traditional IRA contribution eligibility at age 70½ (applies to contributions for taxable years beginning after 12/31/2018);
  • remove restrictions and allow any IRA owners to invest in S-Corporation bank securities (effective 1/1/2018); and
  • treat graduate student or doctoral candidate stipend, fellowship, and similar payments as “earned income” for IRA contribution eligibility purposes (effective for taxable years beginning after 12/31/2018).

Miscellaneous Provisions

RESA contains several provisions less high-profile in nature, provisions that chiefly deal with employer plans. Such provisions would

  • treat most retirement plan loans enabled through credit card programs as distributed from the plan (effective for plan years beginning after 12/31/2018);
  • increase the following retirement plan reporting failure penalties
    • Form 5500: $100 per day to a maximum of $50,000,
    • Form 8955-SSA (reporting deferred vested benefits): $2 per participant per day to a maximum of $10,000,
    • Withholding notices: $100 per failure to a maximum of $50,000 (effective for returns, statements, or notifications required to be filed after 12/31/2018);
  • accelerate PBGC defined benefit (DB) pension plan insurance premiums to improve the agency’s solvency (application date to be determined);
  • clarify PBGC insurance premiums for DB plans of cooperative and small employer charities (effective for plan years beginning after 12/31/2017); and
  • clarify that employees of church-controlled organizations may be covered by a 403(b) plan that consists of a retirement income account (effective for all plan years, including before RESA enactment).


RESA’s prospects for enactment appear enhanced by the fact that it is known to be a high priority of Sen. Hatch, who will retire after his current Senate term. Furthermore, there could be an opportunity to attach its provisions to congressional appropriations legislation that must be approved by March 23, 2018, in order to avoid another government shutdown. The legislation could also certainly move forward as a stand-alone bill. Visit www.Ascensus.com for the latest developments.

Bill Seeks to Help Individuals Find Unclaimed Retirement Benefits & Provide Relief to Employers with Benefits Due Missing Participants

Senators Elizabeth Warren (D-MA) and Steve Daines (R-MT) have introduced the Retirement Savings Lost and Found Act of 2018 (the Act). The Act would create the Office of Retirement Savings Lost and Found, which would rely on new tools and build on existing reporting and disclosure rules to achieve two overall objectives: 1) assist participants and beneficiaries in finding and obtaining unclaimed retirement benefits in plans subject to ERISA’s vesting rules, and 2) provide plan administrators with a new option for balances of missing or lost participants. The bill would generally become effective the second year after it is enacted.


Retirement Savings Lost and Found Database

The Act would require the Commissioner of Social Security and the Secretary of the Treasury to create an online database called the Retirement Savings Lost and Found (RSLF). The objective of the database would be to allow individuals—with assistance from the RSLF Director, if needed—to locate the plan administrator of plans in which they have benefits.

The database would be populated with information gathered from IRS Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits. This form would be modified to include information such as

  • the name and taxpayer identification number of participants or former participants whose benefits were either paid out, automatically rolled over to an IRA , or distributed in the form of a deferred annuity contract;
  • the name and address of the IRA trustee that received an automatic rollover of a cash-out amount; and
  • the account or contract number into which the assets were placed.

When participants separate from service, plan administrators would be required to provide them with information about the availability of the RSLF.

Plan administrators who automatically roll over a cash-out amount to an IRA would also be required to notify the receiving IRA trustee that the rollover is a mandatory distribution.

The statute suggests that changes could be made to IRS Forms Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and IRS Form 5498, IRA Contribution Information to satisfy the Act’s reporting requirements for the year such amounts are rolled over.

The reports would be required to state that such rollovers are mandatory and would be required to be filed with the RSLF Director.


Additional Relief Regarding Small Balances and Benefits of Missing Participants

In addition to creating the online RSLF database for those seeking unclaimed retirement benefits, the Act provides new options for plans to dispose of small balances and provides a compliance cushion when certain requirements can’t be met because a participant or beneficiary is lost or missing.


Small Balance Disposition

In addition to creating an online information bank to assist in claiming benefits, the Act would also make the following changes for small, unclaimed balances.

  • The involuntary cash-out limit for former participants would increase from $5,000 to $6,000.
  • After notifying former participants, plan administrators would be required to roll over balances of $1,000 or less to either an IRA established by the Secretary of Treasury or to the RSLF if the participant fails to claim the assets within six months. For tax purposes, a rollover to the RSLF would be treated as a rollover to an IRA and subsequent distributions would be treated as from an IRA.
  • For purposes of fiduciary relief under ERISA Sec. 404(c), the Act would expand the circumstances under which individuals are deemed to exercise control of accounts that are automatically rolled over to include rollovers made to
  • target date or life cycle funds held under the IRA,
  • the RSLF Director,
  • an IRA established by the Secretary of the Treasury, or
  • any other option provided by Secretary of Labor.


Relief Regarding Missing Participants

The Act would generally provide relief for plan fiduciaries by specifying that

  • a plan administrator or other plan fiduciary would generally not fail to comply with any requirements under the Internal Revenue Code (IRC) or ERISA—including the requirement to pay required minimum distributions or to provide documents, information, etc., to missing individuals;
  • when an individual is no longer considered missing, there would be a 180-day grace period for satisfying requirements under the IRC or ERISA, after which any temporarily suspended requirements must be met; and
  • the PBGC’s missing participant program, which now includes defined contribution plans in addition to defined benefit plans, will remain an option—and an alternative to the RSLF—for retirement plans that cash-out small balances.


Definition of Missing Participant

For purposes of the Act, the term “lost or missing participant” generally means a participant, former participant, or beneficiary of a participant, who cannot be located despite a plan administrator or other responsible party (e. g., a plan service provider or an IRA trustee) having

  • satisfied its Form 8955-SSA reporting obligation;
  • made at least one attempt to contact the participant at the most recent address on file with the plan; and
  • taken one or more additional measures to locate the participant, including checking with the administrator of a related plan, attempting to contact the participant’s beneficiary, conducting a search using a free electronic search tool, and using a commercial locator service.



The issue of unclaimed benefits—and the difficulty plans face meeting the requirements to dispose of them—are becoming more and more visible. Equally visible are the shortcomings of many workers in their preparedness for a financially secure retirement. Together, these factors may motivate Congress to act to at least ensure that existing retirement benefits find their rightful owners.

Given the bipartisan sponsorship and support for this bill’s concepts, it is possible that some or all of its provisions—on their own, or attached to other legislation—could find their way to enactment. Visit www.Ascensus.com for the latest developments.


Washington Pulse: Budget Bill Broadens Disaster Relief, Rewrites Hardship Rules, and More – Plan Amendments Expected

On February 9, 2018, Congress approved and President Trump signed into law the Bipartisan Budget Act of 2018 (BBA-18). In addition to funding the federal government, it makes important changes to retirement plans. Specifically, it provides expanded tax relief for victims of natural disasters, relaxes the rules for hardship distributions from employer plans, makes slight changes to portability rules, and requires the IRS to create a simplified tax return for filers age 65 or older.

Relief for Victims of California Wildfires

BBA-18 provides relief to California wildfire victims consistent with previous legislation following major natural disasters, dating back to 2005 for Hurricane Katrina and, more recently, to October 2017 for Hurricanes Harvey, Irma, and Maria. The relief is provided to individuals who receive “qualified wildfire distributions.” A qualified wildfire distribution is a distribution to an individual whose principal residence is within the declared disaster area and who has suffered an economic loss as a result of the wildfires. The following relief is granted.

  • Individuals may distribute up to $100,000 from their IRAs and employer plans.
  • Qualified distributions must be received on or after October 8, 2017, and before January 1, 2019.
  • Individuals may evenly spread taxation of their qualified distributions over a three-year period.
  • Qualified distributions are exempt from the 10 percent early distribution penalty tax.
  • Individuals may repay qualified distributions to an employer plan or IRA over a three-year period.
  • Employer plan distributions are not subject to the mandatory 20 percent withholding requirement.
  • Employers may grant up to $100,000 in plan loans (increased from $50,000), and the usual 50 percent-of-vested-balance limitation is increased to 100 percent.
  • Employer plan loan repayments due between October 8, 2017, and December 31, 2018, may be delayed for one year.
  • Participants have until June 30, 2018, to repay hardship distributions taken for home construction suspended because of wildfires.
  • Employers have until the end of their 2019 plan year (2021 for governmental plans) to adopt any applicable amendments.

Softening the Hardship Rules

Participants in employer plans must have a distribution “triggering” event before they can receive a plan distribution. Plan permitting, certain hardship conditions qualify as such an event. BBA-18 alters the following restrictions on hardship distributions. (Effective for 2019 and later plan years.)

  • Elimination of six-month deferral suspension requirement: BBA-18 directs the Treasury Department to write new regulations eliminating the portion of the current safe harbor rule which requires participants to suspend deferrals for at least six months after receiving a hardship distribution.
  • Employer contributions eligible for hardship distributions: Qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs)—and their earnings—are eligible for hardship distributions. In addition, earnings on elective deferrals will be eligible for hardship distribution.
  • Loans need not precede hardship distributions: Participants will not be required to take a plan loan before receiving a safe harbor hardship distribution.

Rollover of Wrongful IRS Levy

The IRS may levy (seize) IRA and employer plan assets in order to collect taxes it is owed. If the Treasury Department determines that a prior levy from an IRA or employer plan should not have occurred and returns assets to the taxpayer, the taxpayer may return the assets to an IRA or employer plan under the following terms. (Applies to amounts returned on or after January 1, 2018.)

  • The amount of money returned to the taxpayer, adjusted for earnings, may be rolled over to an IRA or employer plan (plan permitting).
  • The rollover must occur by the individual’s tax return deadline (not including extensions), for the year in which the amount is returned. For tax purposes, the rollover will be treated as if it occurred in the year the IRS levy resulted in the distribution.
  • A rollover to an IRA will not count towards the one-per-12-month IRA rollover limitation.
  • A non-Roth (generally pretax) amount rolled over to a Roth IRA or designated Roth account will be taxable.
  • Nonspouse beneficiaries with inherited IRAs may roll over returned amounts to such IRAs.

Simplified Tax Form for Seniors

Certain items of income have historically required taxpayers to file an income tax return other than simplified tax returns 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, or 1040R, U.S. Individual Income Tax Return. BBA-18 directs the Treasury Department to draft a new, simplified income tax form (Form 1040SR) that any taxpayer age 65 or older may use.  (Available for 2019 tax year filings.)

  • Form 1040SR is to be as similar to Form 1040EZ as possible.
  • A taxpayer must be age 65 or older in the tax year for which the form is filed.
  • Form 1040SR may be used by individuals whose income includes capital gains and losses, interest or dividends, distributions from most retirement plan arrangements, and Social Security benefits.
  • Income limits will not apply to the use of Form 1040SR.

Solvency of Union Pension Plans and PBGC

BBA-18 establishes a Joint Select Committee on Solvency of Multiemployer Pension Plans. While defined benefit pension plans in general sometimes face solvency issues, the problem has been particularly acute among multiemployer (i.e., union) pension plans. The Committee is to make recommendations and propose legislation to improve the solvency not only of these plans, but also of the Pension Benefit Guaranty Corporation (PBGC). The mandate requires public hearings, approving a report, and proposing legislation by November 30, 2018.

A Foreshadowing of Things to Come?

2018 could be a year of significant legislative action for retirement plans.  As both the tax reform bill and the Bipartisan Budget Act of 2018 have demonstrated, retirement provisions can readily find their way into legislation that does not target them specifically. This appears to be especially true of concepts that are noncontroversial and have bipartisan support. It would not be a great surprise if we see more of the same in the months to come. Ascensus will continue to analyze the changes made by BBA-18 and their effect on retirement products, services, and operations. Visit www.Ascensus.com for the latest developments.

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Washington Pulse: RETIRE Act Promotes Electronic Delivery of Retirement Plan Information

Tax reform legislation grabbed the headlines at the close of 2017. But another year-end bill could significantly change how retirement plans deliver participant and beneficiary communications. The Receiving Electronic Statements To Improve Retiree Earnings (RETIRE) Act would allow plan administrators to use electronic delivery as the default delivery method for virtually any required plan document. Participants and beneficiaries could still opt to receive paper copies of this information.

The bipartisan legislation (H.R. 4610) is sponsored by Representative (Rep.) Phil Roe (R-TN) and Rep. Jared Polis (D-CO), along with 26 Republican and Democratic cosponsors. It was previously introduced in 2015. Electronic-delivery proponents point out that consumers are increasingly handling their financial affairs online: they are more savvy with new technology, and many actually prefer to communicate and transact electronically.

Proponents also expect that electronic delivery will cost far less than printing and mailing paper notices, and these savings could be passed on to participants and beneficiaries. Electronic delivery could also reduce paper waste, create more efficient data storage, and provide greater security.

System Requirements for Using E-Delivery

To use electronic delivery as the default method for providing plan documentation, plan administrators must adhere to these requirements in the RETIRE Act.

  • The system for providing documents must be “designed to result in effective access to the document by the participant, beneficiary, or other specified individual through electronic means.” This can be done through
    • direct delivery of material to the recipient’s electronic address;
    • posting material to a website or other repository to which the recipient has access, if the plan administrator also provides a proper notice of the posting; or
    • “other electronic means reasonably calculated to ensure actual receipt” by the intended recipient.
  • The system must permit the recipient to
    • select from the various electronic methods that the employer makes available,
    • modify that selection at any time, and
    • elect to begin receiving paper versions at no additional direct cost.
  • The system must protect the confidentiality of personal information relating to the recipient’s accounts.

Additional Requirements

While the RETIRE Act streamlines administration through electronic delivery, it also requires safeguards to protect the recipient.

  • Plan administrators must provide a paper notice each year that describes the recipient’s
    • current method of receiving plan notifications, and
    • right to change the method at any time (or to receive free paper versions) and how to make the change.
  • The electronically delivered documents must
    • be provided in a way that reflects the original document (e.g., readability and content), and
    • inform the recipient of the document’s significance.

Effective Date and Plans Types Affected

The opportunity for retirement plans to deliver information electronically under the RETIRE Act method would become effective for plan years starting in 2019 and would apply to retirement plans governed by Title I of ERISA—generally described as “qualified plans”—and to 457 plans.


Plan administrators can currently deliver required plan notices and other information electronically. But the existing methods leave much to be desired: the detailed requirements can place big barriers on the path toward more efficient delivery. So the RETIRE Act would be a step in the right direction, balancing the importance of plan participants and beneficiaries getting important information with the need for employers to save time and money.

Click here to view a printable version.

Washington Pulse: Rep. Neal Proposes Enhancements to Auto Enrollment, RMD, Lifetime Income, and Other Retirement Plan Rules

Representative (Rep.) Richard Neal (D-MA), Ranking Democrat on the influential House Ways and Means Committee, has introduced the Retirement Plan Simplification and Enhancement Act  of 2017 (RPSEA). The legislation would significantly modify current rules for individual retirement arrangements (IRAs) and employer-sponsored retirement plans. The bill aims to expand retirement plan coverage, preserve retirement income, and simplify retirement plan rules.


Although the 2017 session of Congress has come to an end, the proposals made in this bill have support among both Democrats and Republicans. Given this fact—and the common-sense nature of the bill’s provisions—there is a good possibility that Congress could act upon this legislation or elements of it in 2018. Following are some of RPSEA’s significant provisions.


Changes for Both IRAs and Employer Plans  

Some parts of RPSEA deal exclusively with employer plans. Other elements—like those below—would affect those who save for retirement in either an IRA or an employer plan.



  • Nonspouse beneficiary indirect rollovers: nonspouse beneficiaries of IRAs or employer plans could move assets by indirect (60-day) rollover, rather than only by plan-to-IRA direct rollovers or IRA-to-IRA direct transfers.


  • Nonspouse beneficiary rollovers to employer plans: a nonspouse beneficiary could directly roll over inherited employer plan assets to an employer plan in which the beneficiary is a participating employee. These inherited rollover assets would continue to be distributed under the beneficiary payout rules.


Required Payouts

  • No RMDs for certain individuals: retirement assets in IRAs and employer plans would be exempt from required minimum distributions (RMDs) until an individual’s aggregate balance exceeds $250,000.


  • Increased RMD age: the age when Traditional and SIMPLE IRA owners and retirees and certain owners in employer plans must begin distribution would increase in steps from age 70 ½ to age 73 by the year 2029, and increase thereafter as changes in life expectancy may warrant.


  • Qualifying longevity annuity contract (QLAC) enhancement: longevity annuities begin payout at an advanced age, and are excluded from RMD requirements. Amounts used to purchase such annuities would no longer be limited to 25 percent of retirement assets and the current $125,000 limit would be raised to $200,000, indexed.


  • Lifetime income streams: to encourage greater use of lifetime income investments, RMD rules would be modified to accommodate annuities that offer accelerating distribution options, including lump-sum payments.


Contributions and Credits

  • Saver’s credit and simplified tax filing: taxpayers eligible for the saver’s credit for IRA contributions and deferrals made to an employer plan could claim this credit on Form 1040-EZ, Income Tax Return for Single and Joint Filers With No Dependents, rather than only on the longer Form 1040, S. Individual Income Tax Return.


Employer Plan and IRA Corrections

  • More self-correcting for employer plans: the IRS’ Employee Plans Compliance Resolution System (EPCRS) correction program would be expanded to allow more self-correction options and to include IRAs; changes would include certain RMD, loan, and rollover failures.


  • Grace period for automatic-enrollment failures: employers whose deferral plans have automatic-enrollment or automatic-escalation features would have 9½ months after the end of the plan year to correct failures related to enrolling or increasing employee elective deferrals.


  • New 401(k) safe harbor plan correction option: 401(k) safe harbor plans that use the nonelective contribution formula could correct certain excess contributions by increasing the standard safe harbor nonelective contribution from three percent to four percent.


Traditional IRA Provisions

Individuals with earned income would be allowed to make Traditional IRA contributions after age 70-½ (as with Roth IRAs).


Employer Plan Provisions

The goal of simplifying rules for establishing and maintaining employer retirement plans has been an elusive one, despite widespread agreement that doing so will lead to greater financial security for workers in retirement. Rep. Neal’s bill includes a number of items aimed at simplifying employer plan provisions.


Automatic Enrollment

  • Encourage higher employee deferral rates: the legislation would eliminate the current 10 percent cap on automatically-increased deferral rates of employees who are automatically enrolled in a plan.


  • Simplify notice requirements: the Treasury Department would be required to issue regulations, or other guidance, simplifying the timing for providing notices to automatically-enrolled employees; in particular, in plans that permit immediate participation, or that have multiple payroll systems.


Eligibility and Coverage

  • Covering less-than-fulltime workers: employees who work for three consecutive years with at least 500 hours of service each year would be allowed in an employer plan, but would be excluded from coverage, top-heavy, and nondiscrimination testing.


Incentive to allow early plan entry: When determining the top-heavy status of any of its plans, an employer may exclude participants who have not yet met the minimum age and service requirements (age 21 and 1 year of service) if the employer satisfies the top-heavy minimum contribution separately for those participants.


Miscellaneous Plan Administration

  • More time to set up a plan: most retirement plans must be established by the last day of the business year, though they can be funded later. The deadline for establishing a plan would be extended to the business’ tax return deadline, including filing extensions.


  • Simplified reporting and disclosure: the legislation directs the Secretaries of the Treasury and Labor, as well as the Pension Benefit Guaranty Corporation, to study and report to Congress on opportunities to standardize, consolidate, simplify, and improve reporting and disclosure requirements that apply to retirement plans.


  • Adoption, amending of Safe Harbor 401(k) plans: a 401(k) plan could adopt safe harbor status for a plan year as late as the deadline for distributing excess contributions for such year and without having given a prior-year notice, if the plan provides a nonelective safe harbor contribution to participants.


  • Simplifying 403(b) plan termination: participants in a terminating 403(b) plan could distribute their 403(b) custodial account in-kind and still retain their 403(b) account’s tax-deferred nature if the 403(b) rules continue to be followed.


RPSEA Proposes More Aggressive 401(k) Design

Automatic-enrollment and automatic-increase features in 401(k)-type retirement plans are widely considered important in leading workers to save more, and to be better-prepared for a financially secure retirement. Rep. Neal’s bill builds on existing safe harbor plan designs with the Secured Deferral Arrangement (SDA). Like existing safe harbor designs, an SDA would be exempt from nondiscrimination and top-heavy testing if no other employer contributions are made. Its features include the following.

  • Automatic enrollment beginning at a minimum of 6 percent—but not more than 10 percent—allowing opt-out at any time.
  • No 10 percent cap on automatically-increasing deferral rates.
  • A graduated employer match on deferrals, equaling 4½ percent for those who defer at least 10 percent of pay (but no match on deferrals above 10 percent).



Many on both sides of the political aisle are likely to support some—if not all—of its provisions. But with the 2017 session of the 115th Congress having come to an end, further progress on changes like these will have to await the arrival of the 2018 session.  As always, Ascensus will continue to monitor any and all legislation that could have an effect on IRAs, employer plans, and other tax-advantaged savings arrangements. Visit www.Ascensus.com for the latest developments.

Washington Pulse: President to Sign Tax Reform; IRAs, Qualified Plans, 529s, and Other Savings Arrangements Impacted

On December 20, 2017, the House and Senate passed H.R. 1, the final tax reform bill (the Bill). The Bill will soon be signed into law by President Trump, resulting in fulfillment of one of the GOP’s major 2016 campaign promises. The Bill will affect retirement and other tax-advantaged savings arrangements and, in some cases, will become effective as soon as it is signed. Highlights of the changes made to savings arrangements and their effective dates are described below. In addition, Ascensus has prepared a comparison chart showing the differences between the current rules, the original House and Senate proposals, and the new rules provided in the Bill.

Changes to IRAs, Education Savings, and ABLE Arrangements

Recharacterizing Roth IRA Conversions Eliminated

The Bill eliminates a taxpayer’s ability to recharacterize a conversion to a Roth IRA. As a result, converting non-Roth IRA assets or rolling over employer plan assets to a Roth IRA will be a one-way process. Annual contributions to a Roth IRA can still be recharacterized as Traditional IRA contributions for the same tax year and vice versa. (Effective for tax years beginning after December 31, 2017.)

Slower Cost-of-Living Adjustments for IRAs, HSAs, Archer MSAs, and the Saver’s Credit

The Bill will change the method for calculating adjustments for inflation so that they will occur less frequently than under the current formula. This will apply to IRA, HSA, Archer MSA, and saver’s credit-related adjustments. Annual limitations associated with employer-sponsored retirement plans will generally not be affected. (Effective for tax years beginning after December 31, 2017.)

529 Plans and ABLE Accounts

The Bill makes the following changes to 529 plans and Achieving Better Life Experience (ABLE) accounts.

  • 529 plan assets (up to $10,000 annually) can be used for elementary and secondary school tuition expenses, in addition to those qualified post-secondary education expenses allowed under current law. (Effective for 529 plan distributions made after December 31, 2017.)
  • 529 plan assets can be rolled over to ABLE accounts for special-needs individuals, in amounts up to the annual ABLE contribution limit (e.g., $14,000 for 2017); such rollovers would offset other contributions to that ABLE account for the year. (Effective for 529 plan distributions made after the date of enactment, and rollovers before January 1, 2026.)
  • An ABLE account beneficiary (the special-needs individual) can contribute his earned income even if his contribution, when added to contributions made by others, results in overall contributions above the annual ABLE contribution limit. The ABLE account beneficiary’s contribution amount will be limited to the lesser of his income or the federal single-person poverty limit. The ABLE account beneficiary, or a person acting on his behalf, will be responsible for ensuring compliance with the additional contribution limit. The additional contribution will be unavailable if the ABLE account beneficiary made deferral contributions to a 401(k), 403(b), or governmental 457(b) plan. (Effective for tax years beginning after the date of enactment, and contributions before January 1, 2026.)
  • ABLE account contributions made by the ABLE account beneficiary will be eligible for the saver’s credit. (Effective for taxable years beginning after the date of enactment, and contributions before January 1, 2026.)

Provisions Applying to Employer-Sponsored Retirement Plans

Rollover of Offset Retirement Plan Loans

The Bill extends the 60-day period for rolling over the amount of an “offset” to a plan loan to the tax filing deadline, including extensions, for the tax year in which the offset/distribution occurs. The extension applies to offsets as a result of plan termination or severance from employment. (Effective for loan offsets treated as distributed in tax years beginning after 2017.)

Casualty Loss Provision Could Affect Plan Hardship Distributions

The Bill no longer allows a deduction for casualty losses unless a taxpayer suffering the casualty loss is located in a presidentially-declared disaster area. Deductible casualty losses are also among the “safe harbor” conditions for hardship distributions from employer-sponsored retirement plans under existing Treasury regulations. Unless those regulations are rewritten, casualty losses experienced by certain plan participants may no longer meet the safe harbor condition commonly used in the granting of certain hardship distributions. (Effective for losses incurred in taxable years beginning after December 31, 2017, and before January 1, 2026.)

Taxation of Pass-Through Income

The Bill generally provides owners of businesses that result in pass-through income (e.g., partnerships, s-corporations) with a deduction up to 20 percent of business income. Generous pass-through income tax rules could potentially create a disincentive for employers to establish or maintain retirement plans. But analysis of the new rule suggests that concerns about a disincentive have been minimized or eliminated compared to more generous formulas. (Effective for tax years beginning after December 31, 2017.)

Tax-Advantaged Savings Arrangements in General

Special Relief for 2016 Disaster Areas

The Bill grants retirement plan-related relief to eligible victims of any 2016 presidentially-declared disaster. This relief is basically retroactive and includes the following.

  • Qualifying distributions of up to $100,000 from employer-sponsored retirement plans and IRAs before age 59½ will not be subject to the 10 percent early distribution penalty tax.
  • Repayment of qualifying distributions from employer-sponsored retirement plans and IRAs can be made within three years.
  • Distributions not repaid will generally be taxed ratably over a three-year period, unless electing otherwise.
  • Otherwise-mandatory withholding will be waived for qualifying distributions.
  • Delayed amendment deadlines for employers that grant the relief but without enabling plan provisions; plans can be amended to add such provisions by the end of the first plan year beginning on or after January 1, 2018.

(Effective as of the date of enactment, and applicable to distributions on or after January 1, 2016, and before January 1, 2018.)

Items Eliminated From Prior Senate and House Bills

The following items were among provisions in earlier versions of the House and Senate bills, but subsequently removed either before passage, or by the conference committee that resolved differences between the House and Senate bills.

  • Relaxation of hardship distributions to include qualified nonelective contributions (QNECs), qualified matching contributions (QMACs), and earnings on these and employee deferrals.
  • Alignment of annual and catch-up deferral contributions among 401(k), 403(b), and governmental 457(b) plans.
  • Alignment of the in-service distribution eligibility age of 59½ as an option for all plans.
  • Adding the assessment of a 10 percent early distribution penalty tax to distributions from governmental 457(b) plans.
  • Creation of a safe harbor formula for employers to determine “independent contractor” vs. “employee” status.
  • Creation of a nondiscrimination testing safe harbor for certain defined benefit pension plans closed to new participants.
  • Creation of a simplified tax return form for taxpayers age 65 and older.

Next Steps

In the context of tax-advantaged savings arrangements, and by comparison to some of the drastic changes that were initially being considered by Congress (e.g., limiting pretax elective deferrals to employer-sponsored retirement plans), the result is a positive one. As is always the case with tax law changes, questions will arise no matter how straightforward some changes seem on the surface. Ascensus will continue to monitor any and all developments resulting from tax reform pertaining to IRAs, employer-sponsored retirement plans, and other tax-advantaged savings arrangements. Visit www.Ascensus.com for the latest developments.



Washington Pulse: Automatic Retirement Plan Act Proposes Mandatory Retirement Plans

Rep. Richard Neal (D-MA), the ranking democrat on the House Ways and Means Committee, recently introduced the Automatic Retirement Plan Act of 2017 (ARPA). The bill, if enacted, would have significant retirement savings plan implications. ARPA is a step beyond Rep. Neal’s past legislative efforts, which have included introducing bills to require employers with no retirement plan to establish automatic enrollment IRA programs.

ARPA would require many employers to maintain an automatic contribution (AC) plan. An AC plan is a 401(k) or 403(b) plan that would be subject to new rules, all of which are intended to expand the number of workers who have access to, and are enrolled in, employer-sponsored deferral plans.

In addition to requiring AC plans, ARPA would enhance employers’ ability to participate in multiple employer plans (MEPs), limit formation of new state-sponsored automatic-enrollment IRA programs, and propose certain other miscellaneous retirement plan provisions.

Highlights of AC Plan Provisions

Employer Mandate

All employers ­— except those with 10 or fewer employees, those in business less than three years, and governmental and church employers — would be required to maintain AC plans for their employees beginning in 2020 (2022 for employers with 100 or fewer employees earning at least $5000 in the prior year). Employers who fail to maintain an AC plan would generally be assessed a $10 per employee-per-day penalty.

Qualified plans, 403(b) plans, simplified employee pension (SEP) plans and savings incentive match plan for employees of small employers (SIMPLE) IRA plans in existence on the date ARPA is signed into law and that have been maintained for at least one year would generally be considered “grandfathered” AC plans. Grandfathered AC plans could continue to be maintained, as is, for six years from the date of enactment (eight years for employers with 100 or fewer employees earning at least $5000 in the prior year). After such period the relaxed eligibility rules and the prohibition against unreasonable fees (both described below) that apply to AC plans would apply to grandfathered AC plans.

General AC Plan Requirements

AC plans would generally be required to

  • include all part time and full time employees—except employees under age 21, nonresident alien and seasonal employees, certain union employees, and employees employed less than one month;
  • include automatic-enrollment beginning with a minimum deferral of six percent (but no more than 10 percent) and include automatic increases;
  • invest plan assets in a QDIA in the absence of a participant investment election; and
  • permit participants to elect to receive at least 50 percent of their account balance in the form of a distribution that guarantees them lifetime income.

The bill would also prohibit charging unreasonable fees to participants because they have small account balances or because the employer was required to establish an AC plan.

Special Rules for Deferral Only AC Plans

AC plans that permit only elective deferrals would be

  • required to limit elective deferrals to $8,000 annually ($9,000 for participants age 50 and older),
  • exempt from ADP testing,
  • treated as not being top-heavy, and
  • eligible—no matter how many employees an employer has—to file Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

ARPA’s Multiple Employer Plan (MEP) Provisions

Until now, regulatory requirements have prevented many employers from taking advantage of the economies of scale offered by MEPs. ARPA would broaden employers’ ability to join together in such plans (called “pooled employer plans” or “PEPs” in the bill), and provide the following.

  • A common ownership or common business purpose would not be required to participate.
  • One employer’s compliance failure would not jeopardize the entire plan.
  • The IRS/Treasury Department would provide a model plan document for such arrangements.
  • The IRS would provide guidance on a common plan administrator’s (pooled plan provider’s) duties.
  • Small employers participating in such PEP arrangements would not be considered fiduciaries.

State Automatic IRA Plan Preemption

ARPA would limit future expansion of state-sponsored automatic IRA plans. Specifically, IRA-based automatic-enrollment plans established by states for private sector workers could continue in operation if their statutes were enacted before enactment of ARPA. Plans established under state statutes enacted after ARPA, or pre-ARPA plans that are later materially changed, would be preempted, and such states’ employers would not be bound by such state laws.

Miscellaneous ARPA Provisions

ARPA makes numerous proposed changes to several other rules. These changes are also designed to expand coverage, encourage automatic contribution features and promote lifetime income features. The most significant changes include the following.

  • The start-up tax credit of up to $500 annually for three years that is available to certain small employers that establish a plan would increase to up to $5,000 annually, for as many as five years. The credit would cover 100 percent of costs for qualifying employers with 25 or fewer employees and 50 percent of plan costs for qualifying employers with more than 25 employees but not more than 100 employees.
  • A small employer maintaining an AC plan (excluding a grandfathered AC plan) plan could claim a $500 credit during a five-year period that begins with plan adoption.
  • The Saver’s Credit would be required to be contributed directly to a Roth IRA or designated Roth account within a plan.
  • The IRS would be authorized to require additional Form 5500 reporting designed to help it determine the effect of nondiscrimination safe harbors on contributions for rank and file employees.
  • 401(k) qualified automatic contribution arrangements could be designed to automatically increase elective deferrals more rapidly, and rise above 10 percent.
  • All safe harbor 401(k) plans could provide a matching contribution on elective deferrals above six percent.
  • Plans that cease to offer lifetime income or managed-account investments would be allowed to offer a direct rollover option for such investments.


Rep. Neal has long been an active and avid supporter of enhancing retirement saving opportunities, as demonstrated by numerous past bills introduced during his tenure in Congress. As for immediate prospects for ARPA, there is little time left in the 2017 congressional session, and with Congress preoccupied with tax reform Rep. Neal and those who support his legislation will likely be looking to consider it during 2018. Ascensus will continue to monitor this legislation. Visit www.Ascensus.com for the latest developments.