New Executive Order on 401(k)s

September 5, 2018

On Aug. 31, 2018, President Donald Trump signed an Executive Order (EO) directing the Department of Labor (DOL) to allow smaller businesses to band together in offering a joint 401(k) retirement plan. The order also directs Treasury to review distribution rules for retirement savings accounts, and urges both departments to examine options for reducing paperwork and administrative burdens related to retirement plans.

Specifically, the EO would allow open Multiple Employer Plans (MEPs)—also referred to as Association Retirement plans—which would allow multiple businesses to group together to offer one common pension plan or 401(k). MEPs could be one option to addressing the disparity between large and small businesses in offering retirement savings programs.

The EO also called for DOL and Treasury to examine the possible outcomes of raising the age when people with traditional Individual Retirement Accounts (IRAs) and 401(k)s must start making required minimum distributions.

While both options could provide greater retirement flexibility and availability to smaller employers and their employees, NSBA has also urged greater simplification and parity when it comes to the retirement options tailored to small business. Specifically, there ought to be parity between SIMPLE and traditional 401(k) contribution rates – for 2018, business owners and employees who participate in easier-to-administer SIMPLE 401(k) plans can save only $12,500 (before taxes), compared to the $18,500 allowed under traditional 401(k) plan.

Navigating an employee retirement plan can be extremely complex and cumbersome, and can lead to serious taxation issues for the small-business owner. Complex federal rules and legal costs prevent many small businesses from starting and maintaining employee pension plans, and only about 18 percent of businesses that employ fewer than 100 people offer any type of retirement plans to their employees.

It is imperative that regulators seek detailed small-business input on the challenges of offering retirement plans, and fully examine direct and indirect costs of any changes or new requirements on the retirement options for small businesses.