On August 31, 2018, President Trump signed an executive order authorizing the U.S. Department of Labor (DOL) and the U.S. Department of the Treasury to evaluate expanding access to 401(k) retirement plans. The order is designed to cut some of the administrative burdens and costs that prevent smaller employers from offering 401(k) plans to their employees. The Trump administration noted that in 2017, roughly 89 percent of larger employers offered retirement plans compared to only 53 percent of small employers (those with fewer than 100 employees).
The executive order directs the agencies to consider two main issues:
- Expanding the criteria for multiple-employer plans (MEPs), under which employees of different private-sector employers may participate in a single retirement plan; and
- Raising the age when individuals with traditional Individual Retirement Accounts (IRAs) and 401(k)s must start making required minimum distributions, which is currently age 70 ½.
Multiple-Employer Retirement Plans
President Trump has given the DOL six months to look for ways to expand access to workplace retirement plans for part-time workers, sole proprietors, and other entrepreneurial workers with non-traditional employer-employee relationships. One such way is by setting up MEPs, also called Association Retirement Plans (ARPs), in which multiple unrelated employers participate in the same retirement plan.
These types of plans help to reduce costs and make it easier for businesses, especially small businesses, to manage burdensome regulations. Currently, MEPs are limited to companies that share common characteristics, such as operating in the same industry. Under the executive order, however, the DOL will look at expanding the criteria for MEPs so that more companies can participate.
Changes to the Required Minimum Distribution Rules
Among the regulations that the Treasury Department will review are those governing minimum distributions that retirees must take from their 401(k)s or traditional IRAs. Presently, retirees must begin taking withdrawals at age 70 ½, or else face as much as a 50 percent penalty plus any taxes due. The required minimum distributions are based on life expectancy tables issued by the Internal Revenue Service (IRS). The IRS life expectancy tables have not been updated since April 2002, when the average life expectancy was 77 years. Now, the average life expectancy is about 78 ½ years.
In the executive order, President Trump has given the Treasury Department six months to consider delaying the start of minimum distributions to accommodate longer life spans, possibly to age 75. Adjusting these tables could allow account holders to take lower required minimum distributions, thereby keeping more money in their 401(k) plans and IRAs for longer periods.
The Trump administration would like this process to be completed within a six-month time frame, with a final rule being released sometime in 2019. Stay tuned for future posts related to developments in this area.
For questions or additional information about this topic, contact any of the Bass, Berry & Sims employee benefits attorneys.