Retirement Reform Bills Seek More ‘Open’ Plans

By Cyril Tuohy

InsuranceNewsNet

A white paper that made the rounds among retirement plan experts earlier this summer cited Australia’s “superannuation” model, which has helped Australians set aside more money per capita for retirement than any other economy.

Australia, with a population of 22.6 million, has more than $1.7 trillion in superannuation or trust fund assets for retirement, according to retirement plan experts Russell L. Olson and Douglas W. Phillips, who authored the paper.

The paper, titled "Let’s Save for Retirement," found that as of 2012 Australia had the third-highest ratio of pension assets to gross domestic product at 92 percent. This puts Australia behind the Netherlands at 155 percent and Iceland at 141 percent.

The United States is sixth at 75 percent.

As it turns out, some aspects of the Australian model are baked into retirement reform bills in Congress, according to one plan expert. The bills loosen restrictions around multiple-employer benefit plans, making it easier for employers to transfer many of the fiduciary responsibilities and liabilities associated with such plans.

Multiple-employer plans provide a way for small businesses to enroll employees in a retirement plan, proponents of the multiple-employer model say. The plans have been used by companies that share a common industry or payroll provider, primarily association plans and employee leasing organizations.

Pooling similar plans is cheaper and reduces the liability of the plan fiduciary. Both of these are major reasons small employers cite for not sponsoring a retirement plan and for making it difficult for employees to get started with a retirement fund.

U.S. Department of Labor experts, however, have issued recent guidance that unrelated employers cannot adopt “open” multiple-employer plans because they violate the Employee Retirement Income Security Act (ERISA) and increase the risk of benefit plan abuse.

In the Senate, the Universal, Secure and Adaptable Retirement Funds Act of 2014 is aimed at small business. The bill is sponsored by Sen. Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor and Pensions Committee.

The bill, S-1979, introduced in January, would make it easier for small-business owners to sponsor a retirement plan, as it would give businesses access to professional management and risk risking, Harkin said.

The USA Retirement Funds Act would amend ERISA to allow multiple employers to pool their retirement assets, regardless of whether any participating employers share a common interest.

In accordance with ERISA, multiple-employer plans allow for pooling only when employers are affiliated with one another, either by industry or other “commonality of interest.”

Similarly, the Retirement Security Act of 2014, introduced by Sen. Bill Nelson, R-Fla., and Sen. Susan Collins, R-Maine, also proposes to amend ERISA so that small employers can join multiple-employer plans for which they share “no common interest” with other employers.

The bill, S-1970, would make it easier for businesses with fewer than 500 employees to join multiple-employer plans.

“All the reform bills have multiple-employer plans in them,” John “Jamie” Kalamarides, senior vice president of Institutional Investment Solutions for Prudential Retirement, said in an interview with InsuranceNewsNet.

Kalamarides said there is bipartisan agreement from both houses in Congress to make it easier for small businesses to join multiple-employer plans. But with the midterm elections less than two months away, any meaningful retirement reform this year is as good as dead.

Retirement reform isn’t going away, not with so many Americans approaching their golden years with underfunded accounts. The bills under consideration set the stage for substantive discussion when the new Congress convenes in January.

“Nothing is going to pass in this Congress, but with the new Congress the groundwork has been laid,” Kalamarides said.

Consensus on several aspects of retirement reform includes multiple-employer plans, refundable tax credits and lifetime income guarantees, he said.

A third Senate bill, S-1270, also known as the Secure Annuities for Employee Retirement Act, or SAFE Act, would amend the Internal Revenue Code so that qualified multiple-employer plans are treated as an employee pension benefit, even if employers sponsoring the plan “share no common interest.” This bill is sponsored by Sen. Orrin Hatch, R-Utah.

In the House, a bill, H.R. 2035, sponsored by U.S. Rep. Richard Neal, D-Mass., would create automatic individual retirement accounts. The bill, known as the Automatic IRA Act of 2013, would also eliminate barriers to the use of multiple-employer plans.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.