My Two Big Takeaways from the ASPPA Conference
Another ASPPA convention has come and gone, and once again the PenChecks Trust team enjoyed participating in the many learning, networking and socializing opportunities. The conference offered more than 70 workshops on topics ranging from administration and business development to investments and ethics. But what I always seem to get the most out of are the informal conversations during breaks and in the hallways about the issues most affecting the retirement plan space.
This year I heard discussion about new and emerging trends such as “robo-advising” and the increase in litigation in our industry. But of all the information to be gleaned from the conference, two issues stood out for me.
The first involves the very real and exciting possibility that the government may soon allow open multiple employer retirement plans (MEPs), which would be a great boon to our industry and for employees of smaller companies that typically can’t afford to offer a retirement plan. For decades, the government has permitted closed MEPs, but these were usually too costly and complex for smaller companies. If the government decides to permit open MEPs, it would be a game-changer for small- to mid-size companies and their employees.
What’s the difference between the two?
A multi-employer plan is an employee pension or welfare plan that covers the workers of two or more unrelated companies in accordance with a collective bargaining agreement, aka a Taft-Hartley Plan (think “labor union”). It is a single plan that covers employees from different employers.
In closed MEPs, all participating employers must share a common interest, such as belonging to the same industry or association. Also, if one participating employer violates the law or commits a prohibited transaction, all participating employers are held liable. Open MEPs do not require participating employers to belong to the same association or industry. It also appears that if the government approves open MEPs, it will remove the “one bad apple” rule making all participating employers liable for the acts of one non-compliant employer in the MEP.
Using an open MEP, smaller employers can join together to achieve economies of scale, which would make retirement plans far more affordable by reducing administrative and compliance costs. An open MEP would also reduce the risk to smaller employers by limiting fiduciary liability in certain areas. Seems like a win-win-win to me – good for employers, employees and the retirement plan industry.
The government is already allowing states to get into the retirement space by offering IRAs and 401Ks, and has even allowed them to establish open MEPs. I think it would be hard for the government to permit states to do this and not the private sector. Therefore, I believe that in 2017 we are likely to see legislation or authorization allowing the formation of private sector open MEPs.
Interesting Move by the PBGC
The other issue that got my attention was the Pension Benefit Guarantee Corporation’s decision to enter the Default/Auto Rollover IRA space for terminated defined contribution plans. What I found most interesting is the planned fee structure.
According to the PBGC, administration of their Auto Rollover accounts will incur a one-time charge of $35. After that, they won’t charge any additional fees as long as an account remains on the books. As a government agency, the PBGC doesn’t have the same overriding need as the private sector to turn a profit in order to survive. Even so, they still need to be able to cover their costs.
There are other issues to contend with as well, such as escheat issues and what happens to the IRA account when the participant turns 70½. Also, the regs don’t identify what level of service the PBGC plans to offer with their Auto Rollover IRA product. As one of several companies that have been providing comprehensive Auto Rollover IRA solutions for many years, I can assure you it is not an inexpensive proposition.
The PBGC may be planning on an additional source of revenue, such as basis points, that hasn’t been disclosed in the regs. But as of yet we don’t have enough information to determine that. Either way, it will be interesting to see if their initial pricing structure will hold up or if they will need to charge ongoing fees like those of us in the private sector.
If it turns out the PBGC does have a viable Auto Rollover IRA product there are two ways we can look at it – either as an unfair intrusion by the government into our market, or as an opportunity to come up with a better solution. To serve our clients better while protecting our own businesses, I recommend we choose the latter.
President and CEO