Legislative update – June 2018

In March 2018 there was a possibility that all or part of the Senate’s bipartisan Retirement Enhancement and Savings Act of 2018 (RESA), which addressed a number of important retirement policy issues, would be included in omnibus spending legislation that was passed on March 23, 2018. That ultimately did not happen, because of objections raised by House Republican leadership.

The next round of spending legislation comes up at the end of the current fiscal year, September 30, 2018, when it looks like there will be another omnibus bill, and there is, again, a possibility of the inclusion in that legislation of a collection of bipartisan retirement policy proposals.

In this article we review five such initiatives, dealing with missing participants, an increase to the cash-out dollar limit, a defined contribution plan annuity safe harbor, removing regulatory obstacles to Open MEPs, and electronic participant disclosure.

We begin with missing participant legislation.

Retirement Savings Lost and Found Act of 2018

One of the most significant concerns of sponsors with respect to missing participants is the possibility of fiduciary (or other compliance) liability exposure. In the last couple of years, many sponsors have found their missing participant policies and practices challenged by DOL officials in audits. Sponsor concerns in this regard have been exacerbated by an absence of any guidance as to how missing participants in non-terminated plans are to be handled.

On February 28, 2018, Senators Warren (D-MA) and Daines (R-MT) introduced the Retirement Savings Lost and Found Act of 2018, providing (among other things, and in a significant revision to their 2016 proposal) meaningful relief for sponsors on this issue.

Fiduciary and compliance relief with respect to missing participants

Under the 2018 bill, a fiduciary “would not be treated as failing to satisfy any requirement to search for or attempt to locate, or to provide any document or information to, [a lost or missing participant] or any other requirement of [ERISA or the Tax Code] … which cannot be satisfied due to the plan’s inability to locate the participant.” To obtain this relief the administrator would have to:

(1) Satisfy its Form 8955-SSA (Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits) reporting obligation.

(2) Make at least one unsuccessful attempt by certified mail to contact the individual at the most recent physical address in plan records or by electronic mail if the only address is an electronic address.

(3) Take at least one (two where there is only an electronic address) “additional measures” to locate the individual. Additional measures include (i) checking with the administrator of a related plan/plan sponsor, (ii) contacting the individual’s designated beneficiary, (iii) performing a search using “free electronic search tools,” and (iv) using a commercial locator service.

Plan sponsors would welcome the increased clarity this proposal would provide administrators about their obligation to search for missing participants. Some ambiguity remains, however, as to the administrator’s obligation to participants who are not “lost” – where the plan has a good address for them – but who are simply unresponsive.

Retirement Savings Lost and Found

More generally (and oversimplifying), the legislation would establish a “Retirement Savings Lost and Found” that would maintain a database of participant benefits in ERISA retirement plans. Plan administrators would be required to report (on IRS Form 8955-SSA) detailed information about distributions with respect to terminated participants, including “forced cash-outs” (generally of amounts in excess of $1,000 (but (under current rules) not in excess of $5,000) to IRAs.

It would add a requirement that, to get ERISA section 404(c) treatment of those forced cash-outs (currently generally available one year after the transfer to an IRA is made), the distribution would have to be made to either: (1) a target date or lifecycle fund; (2) an “account designed to preserve principal and provide a reasonable rate of return;” (3) the Director of the Retirement Savings Lost and Found or to an IRA established by the Secretary of the Treasury; or (4) to another option specified by DOL.

The bill would raise the cap on forced cash-outs from $5,000 to $6,000. And, with respect to amounts not in excess of $1,000 (which currently can simply be distributed as a check), if the participant does not make an election (in response to a notice) or accept a direct payment, the benefit would have to be transferred to the Retirement Savings Lost and Found or to an IRA established by the Secretary of the Treasury.

Some have criticized this legislation as imposing administrative burdens on sponsors, administrators and providers, the cost of which may outweigh the benefits produced.

House HELP Subcommittee holds hearing on four retirement policy proposals

On May 16, 2018, the Health, Employment, Labor, and Pensions (HELP) Subcommittee of the House Education and the Workforce Committee held a hearing on “Enhancing Retirement Security: Examining Proposals to Simplify and Modernize Retirement Plan Administration.” The Subcommittee reviewed and heard testimony on four bipartisan proposals:

H.R. 4158, the Retirement Plan Modernization Act, which would (among other things) increase the forced cash-out limit from $5,000 to $7,600. The latter amount would be adjusted for inflation after 2018.

H.R. 4604, the Increasing Access to a Secure Retirement Act of 2017, providing for a new in-plan DC annuity fiduciary safe harbor.

H.R. 854, the Retirement Security for American Workers Act, which would eliminate the two regulatory obstacles to Open MEPs.

H.R. 4610, the Receiving Electronic Statements to Improve Retiree Earnings Act, which would allow electronic delivery of most participant disclosures.

In what follows, we briefly summarize the latter three proposals.

Annuity safe harbor</h2

As a general matter, many DC plan sponsors have been reluctant to add an annuity payout option because of possible fiduciary liability – perhaps years after the selection of the annuity carrier – based on a claim that the fiduciary should have known that the carrier was not “financially capable of satisfying its obligations.”

The Increasing Access to a Secure Retirement Act would address this issue by, generally, deferring to state insurance regulation on the issue of the financial condition of the annuity carrier. Under the bill, a fiduciary would be deemed to satisfy the “financially capable” requirement if it obtains certain representations from the insurer (e.g., that it is appropriately licensed and has complied with certain state regulatory requirements). The insurer must notify the fiduciary of any relevant change in circumstance, and the fiduciary cannot be aware of other facts that would cause it to question the insurer representations.

Authorization of Open MEPs

A MEP is a multiple employer plan, defined as a plan for (non-union) employees of unrelated employers. An “Open MEP” would, generally, be a provider-based multiple employer plan in which the participating employers do not have any special relationship with each other or with the provider.

Open MEPs are effectively prohibited under a current DOL rule requiring that a MEP be “tied to the contributing employers or their employees by genuine economic or representational interests unrelated to the provision of benefits” (the “common nexus” requirement). Open MEPs also face a Tax Code obstacle: IRS currently applies a “one bad apple” rule to MEPs – a qualification violation that applies to only one participating employer may disqualify the entire plan.

Tracking language in the Senate’s Retirement Enhancement and Savings Act of 2018, the Retirement Security for American Workers Act would allow DC plan Open MEPs – “Pooled Employer Plans” – that meet certain requirements and that are provided by a “Pooled Plan Provider” and would provide a procedure for dealing with non-complying employers, solving the “one bad apple” problem.

Electronic disclosure

Under the Receiving Electronic Statements to Improve Retiree Earnings Act, any document required or permitted to be furnished to a participant under ERISA could be provided in electronic form provided:

The electronic system used (e.g., email or a website) is “designed to result in effective access to the document.”

The system permits the participant to select among the specific electronic delivery options through which documents would be furnished, change that selection or elect at any time to receive documents in paper (at no additional cost).

The system protects the confidentiality of the participant’s personal information.

An annual paper notice is provided describing the participant’s current selection (e.g., to receive notices via email) and the right to change it.

The electronic document: “(A) is prepared and furnished in a manner that is consistent with the style, format, and content requirements applicable to the particular document, and (B) includes a notice that apprises the individual of the significance of the document when it is not otherwise reasonably evident as transmitted.”


At this point, it is unclear how the FY2019 appropriations process will develop. Most are predicting that some sort of omnibus legislation will be necessary. There are a variety of moving parts – not just Democrat vs. Republican but also House vs. Senate (as noted, the Senate wanted to include RESA in the March 2018 spending deal, but the House objected) and Congress vs. President Trump (when he signed the March 2018 spending bill, President Trump said, “I will never sign another bill like this again”).

Nevertheless, inclusion of one or more of the bipartisan retirement policy proposals we have discussed in a FY2019 spending bill remains a possibility.

We will continue to follow these issues.