The Senate Finance Committee held a hearing on January 28, 2016, on "Helping Americans Prepare for Retirement: Increasing Access, Participation and Coverage in Retirement Savings Plans" focused on proposals to expand multiple employer plans (MEPs) and ways to increase retirement plan participation in a "gig economy" with less traditional employment.

There has been significant Committee interest in MEPs, and Obama administration officials have said the President's FY 2017 budget to be released on February 9 will propose legal changes to encourage broader use of the plans. Last summer, the Finance Committee Savings & Investment tax reform working group recommended consideration of proposals that permit employers to join open MEPs, which allow businesses to share administrative and other responsibilities but are hindered by a common interest requirement among employers.

Ranking Democrat Ron Wyden (D-OR) said he is working with Chairman Orrin Hatch (R-UT) and others on MEPs legislation "aimed at getting old rules out of the way, lowering costs, and easing the burden on employers" to make the plans more widely available. "[T]his is an idea whose time has come," Chairman Hatch said.

Witnesses at the hearing were:

— Dr. Alicia Munnell, Peter F. Drucker Professor of Management Science, Director Boston College Carroll School of Management, Center for Retirement Research at Boston College, Chestnut Hill, MA

— Mr. John J. Kalamarides, Head of Institutional Investment Solutions, Prudential Financial, Hartford, CT

— Mr. Thomas Barthold, Chief of Staff, Joint Committee on Taxation, Washington, DC

In her testimony, Munnell reviewed the proposals discussed in the working group's report as well as "bolder steps" that include requiring all 401(k)s to be fully automatic with an employee opt-out, and auto-IRA legislation at the national level.

Kalamarides acknowledged the growing consensus among financial institutions, consumer groups, and lawmakers in favor of MEPs, which "enable small businesses to participate in a single, professionally administered plan that affords them economies of scale and minimal fiduciary responsibility." He discussed four challenges to expanding the plans:

— requirements imposed at the employer, rather than plan, level, meaning "one bad apple" can jeopardize the plan's tax status;

— the requirement that employers have a commonality of interest;

— the scope of fiduciary liability, which he said should be limited to selection and monitoring of the sponsor and timely remittance of employee contributions; and

— Labor Department concerns about enforcement.

Wyden questioned Munnell about a Government Accountability Office (GAO) finding that some individuals were able to accrue tax-favored retirement savings of millions of dollars, and whether there is a need for better targeting of tax incentives. Munnell said her primary message is there should be a requirement for employers to bring every employee into a retirement plan and for employees to opt out if they choose. "I'm very big on the notion of bringing everyone into the tent," she said, adding that she is not sure how to address exorbitant IRA balances but that she doesn't like to see tax shelters abused by very wealthy people.

Kalamarides emphasized the importance of MEPS in expanding access and portability for long-time, part-time workers in the gig economy, many of whom work at small businesses with no plans currently. Under questioning from Senator Sherrod Brown (D-OH) — co-chair of the Savings & Investment tax reform working group — about who would benefit from expanded MEPs, Kalamarides said the plans could serve small businesses who are less likely to have plans and typically pay less than medium and large employers. Allowing small businesses to pool purchasing power, with changes in the law, will allow small businesses to offer retirement plans at a much higher level, he said.

Senator John Thune (R-SD) asked about the challenges to expanding retirement plan access to the increasing number of part-time employees, and the effectiveness of increasing the current $500 tax credit for small businesses to start a plan. Munnell doubted that a larger credit would make much difference in the take-up rate. Kalamarides suggested that in conjunction with other measures to remove barriers to the formation of open MEPs, the increased credit would be effective. Kalamarides also said long-time, part-time workers can and do save but they are managing income volatility and lack of access to low-cost investment solutions, which expanded MEPs would be useful in addressing. He also urged caution regarding proposals to make the saver's credit refundable, expressing concern about fraud and error rates with respect to the refundable Earned Income Tax Credit. Barthold replied that the area of tax refunds generally — not limited to refundable credits — was a target for "fraudsters."

Thune also asked if open MEPs can assist with portability, an issue raised by Senator Tim Scott (R-SC). Kalamarides said when MEPs are organized on geographic basis and an employee moves from one employer to another, they do not need to switch plans. Moreover, if there is a model plan design at federal level, plan designs will be similar between any MEP and individuals switching from one to another will not experience undue changes in the rules, he said.

Scott voiced concerns about 'leakage' from the retirement savings system, asking if the period of time during which funds can be rolled over was long enough. Senator Charles Grassley (R-IA) also discussed leakage issues, and noted studies that found that restrictions on withdrawals may discourage individuals from contributing to retirement savings accounts.

Senator Mark Warner (D-VA) discussed the evolution of work beyond the "binary 1099/W-2" models, saying it is now less frequently based upon employment in an individual firm and more often broken into specific tasks and bid out in the "gig economy." There is no social insurance involved in this environment and the effort to change that is hindered by the legal distinction between an employee and independent contractor, he said.

Senators Brown and Warner both raised the imminent solvency problems facing multiemployer pension plans, including coal mineworkers plans, and the urgent need for the Committee to consider legislation to protect those retirees. Committee staff have signaled the likelihood of a hearing early this year on multiemployer plan funding.

Member statements and witness testimony from the hearing are attached.

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ATTACHMENTS

Full Text of Hatch Statement

Full Text of Kalamarides Testimony

Full Text of Wyden Statement

Full Text of JCX-4-16

Full text of SFC Testimony