Questions remain as to the language—or lack oflanguage—in the SECURE Act that would allow existing retirementplan service providers to be fiduciary sponsors of Open MEPs,according to Phil Waldeck, president of Prudential Retirement.(Photo: Shutterstock)

The nearly unanimous vote to pass the SECURE Act out of the U.S.House of Representatives has industry stakeholders optimistic thatthe largest retirement bill in more than a decade will ultimatelybe signed into law.

Last week, the Senate attempted to “hotline” the bill, whichwould have effectively moved the SECURE Act to a unanimous consentvote in the upper chamber.

That effort was driven by the overwhelming bipartisan supportfor the bill in the House, explained Jeanne de Cervens, vicepresident and director of federal government relations atTransamerica.

But the fast-tracking of the SECURE Act stalled, based on theobjections of three senators, said de Cervens.

“It's not as if those senators are against the bill,” she said.“But it's that they need to know more information. It's notuncommon for the Senate to hotline a bill and have it not gothrough the first time. Leadership could still move to pass itagain by unanimous consent.”

Who can sponsor Open MEPs?

The names of the dissenting senators have not been released,added de Cervens. Nor is it clear what additional information theyare seeking.

But in tapping the brakes, the Senate may have created the spaceto address emerging concerns over the SECURE Act's Open MultipleEmployer Plan provisions.

Open MEPs are designed to close the retirement plan access gapamong small employers. Under the bill, unaffiliated employers canpool workers and their retirement savings under one definedcontribution plan, potentially allaying employers' fiduciaryrequirements, administrative burdens, and retirement investors'costs.

Questions remain, however, as to the language—or lack oflanguage—in the bill that would allow existing retirement planservice providers to be fiduciary sponsors of Open MEPs, accordingto Phil Waldeck, president of Prudential Retirement.

“Clarity is what providers would be looking for to participatein this market,” Waldeck told BenefitsPRO.

Under a Labor Department regulatory proposal, retirement planservice providers—recordkeepers, insurance companies, mutual fundcompanies, and investment advisors—are explicitly prohibited fromsponsoring Open MEPs. Trade associations and Professional EmployerOrganizations (PEOs) are allowed to sponsor MEPs under Labor'sproposed rule.

The SECURE Act does not include prohibitions on retirement planproviders' sponsorship of Open MEPs, which has led many in industryto assume existing plan providers could be fiduciary sponsors ofpooled plans.

But Waldeck said industry's largest service providers—Prudentialamong them—have genuine concerns that the bill is not specificenough on which entities can sponsor MEPs.

“For a recordkeeper that also offers investment products, thereis a question as to whether it could sponsor a MEP,” said Waldeck.“Players like us would need to evaluate the legislative landscapethat passes before entering the market.”

If plan providers are to enter the Open MEP market, they wouldneed either additional legislation, or clean regulatory guidancefrom the Labor Department.

“To be both a service provider and a MEP sponsor would requirean additional step,” added Waldeck. “If the conclusion is you canonly be one, that would limit the market place.”

“To the extent service providers are saying the language in theSECURE Act is not clear, and there is some risk in that, I agreewith them,” said Dominic DeMatties, a partner in Alston &Bird's employee benefits and executive compensation team.

“But I don't think all hope is lost,” added DeMatties, whopreviously served as an attorney in Treasury's office of thebenefits tax counsel. “The issue is that DOL has had a very stronghistorical position regarding who can be a plan sponsor and whatthe definition of an employer is. The way the SECURE Act is drafteddeals with defining what a pooled plan is. But on defining asponsor of pooled plans, that's not entirely clear.”

The bill instructs the Labor Department to establish regulationson plan document language and fiduciary obligations for employersin pooled plans and providers.

DeMatties said Labor will also have broad authority to definewhether plan providers such as Prudential cansponsor an Open MEP.

“The devil will be in the details,” said DeMatties. “There'sroom for interpretation to be broad enough to bring providers in,but also interpretive room to be tighter about who can sponsor aMEP. Regulators have their work cut out for them.”

Market impact

DeMatties agrees with Prudential's Waldeck in that a narrowinterpretation from Labor—one that would be unfavorable torecordkeepers and fund companies—could significantly limit theamount of pooled plans marketed to employers, and in turn limit theultimate intention of the SECURE Act's MEP provision: to close theworkplace retirement plan access gap.

“It comes down to what extent you want a smaller employer thatdoesn't have a lot of benefits expertise to still be on the hook asfiduciaries,” said DeMatties.

Under the bill, individual employers in pooled plans wouldmaintain a fiduciary obligation to monitor MEP providers. But otherfiduciary obligations borne by sponsors of single employer plans,like investment selection and plan documentation, would fall tofiduciary providers.

“Bringing in a fiduciary provider would create a safer place foremployers and participants,” said DeMatties, an argument that bodeswell for Labor issuing broader regulations that would bringexisting service providers into the MEP market.

But Labor has been considering the same policy arguments foryears, and has continually favored maintaining ERISA's strongfiduciary requirements for employers.

“With any new law that gives broad interpretive authority, thereis the risk regulators won't interpret it favorably forstakeholders,” added DeMatties. “I'm optimistic. My personalopinion is the policy in the bill is clear, and there is sufficientlanguage in the bill's text for Labor to expand coverage bybringing in more service providers to the Open MEP market.”

Don't expect overnight change

Notwithstanding his optimism, DeMatties concedes that Labor hasyet to provide any evidence that it is prepared to issue a broadregulatory interpretation that would include service providers asfiduciary sponsors of MEPs.

“If the SECURE Act were to pass, it wouldn't surprise me to seea very cautious wait-and-see approach from service providers untilsomething definitive comes from Labor,” said DeMatties.

In order for a new MEP market to develop, potential providerswill need regulatory certainty. DeMatties thinks Labor wouldprioritize new MEP regulations, given the imperative established byPresident Trump's 2018 executive order to expand access toworkplace retirement plans.

“If Labor issued proposed regulations within a year of the lawpassing, that would be fast. But if you are waiting for thatguidance, a year is an eternity for a provider, who has to begin toplan their business around what might happen,” said DeMatties.

The clarity that Prudential's Waldeck and other serviceproviders are seeking—be it in the form of added language to theSECURE Act, separate legislation, or favorable guidance from theLabor Department—will take time.

Even with that guidance, no one should expect an Open MEP marketto emerge overnight.

“This legislation is very helpful, and we're at a spot that'staken a long time to get to,” said Waldeck. “But right now, thereis no Open MEP market. It will take some time for the legislationto be effective, and time for a market to develop.”

How much time? Based on the experience of target-date funds,plan design features like automatic enrollment, and even thecreation of the 401(k) plan itself, Waldeck says history shows itcould take as much as a decade for Open MEPs to materially alterthe access gap in workplace retirement plans.

“It doesn't happen overnight,” he said. “First there is thequestion of passing the legislation, then the needed regulatoryclarity. Then providers have to build their capabilities and engagethe market. Then employers will have to move—and they don't do thatovernight. And they all won't decide to sponsor a plan.”

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