It seems everyone is all-in on the need for multiple employer plans (MEP)—politicians, pundits and certainly industry professionals.
Now add D.C.-based think tanks to the list.
The Heritage Foundation is out with a persuasive argument about positive steps recently taken to boost retirement plan participation, including President Trump’s executive order in August to make it easier for smaller businesses to band together to provide workers coverage.
But it’s not enough, and Congress should step up and step in to further goose the numbers.
“Legislative changes are necessary in order to expand savings options even more,” writes Heritage’s Romina Boccia. “While they are a step in the right direction, MEP expansions are merely tweaking the edges of an overly complex retirement system in need of fundamental congressional reform.”
MEPs could even risk entrenching the current broken system, she argues, while taking pressure off legislators to pursue real reform.
“Expanded MEP plans could make future reforms more difficult, as MEPs will create an expanded industry of providers who will profit from the still-fragmented and siloed system.”
How likely is Congress to act on MEPs or other attempts to streamline saving?
Not very, according to MEP expert and advocate Pete Swisher, senior vice president and national sales director with Pentegra Retirement Services.
“Everyone expects legislation any day, and it’s been expected any day since late 2016,” Swisher recently said. “I would say anyone who expects anything legislatively from any Congress, including today’s, [is likely] to be mistaken.”
While making “no legislative predictions whatsoever,” he noted enormous bipartisan support for a broadening of the use of MEPS, and the roughly 15 separate bills since 2010, and all of them favorable to the concept of an open MEP with very similar provisions.
“You would, therefore, think that sort of thing would pass easily, but it’s not how the sausage is made in government, so we don’t have anything passed yet.”
If Congress were to act, however, Heritage’s Boccia proposes the adoption of Universal Savings Accounts, also known in a bit of brilliant marketing by the acronym USAs.
The Family Savings Act, which recently passed in the House as one of three bills that comprise “Tax Reform 2.0” included USAs, which allow taxpayers ages 18 and older to contribute up to $2,500 a year of after-tax income.
“Like private Roth-style retirement savings accounts, after-tax deposits into a USA can be invested to generate earnings over time,” according to Heritage. “Unlike existing special-purpose savings accounts—401(k)s, individual retirement accounts (IRAs), 529 plans—USA holders are not bound by limits on when savings can be withdrawn or for what the funds must be used. All withdrawals from a USA are excluded from taxable income and are thus tax-free.”
While noting that the Administration’s efforts to increase access to retirement savings for workers via new rules governing MEPs represent a step in the right direction, “Congress and the Administration should work together to simplify saving for all Americans,” Boccia concludes.
“USAs should be first on their agenda.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
