Passage last week of the Secure Act by the House of Representatives gives financial advisors a cornucopia of investment, marketing and product opportunities, particularly in the area of multiemployer retirement plans (MEPs).
To look behind the curtain of the legislation and its MEPs provisions, Financial Advisor magazine checked in with Nuveen’s head of defined contribution strategy, Christine Stokes, who said she is eagerly anticipating product development that the bill encourages. Nuveen is the investment management arm of defined-contribution-plan giant TIAA Cref, which has $520 billion in plan assets.
“Specifically, one of the things we are talking about is watching the open MEPS [multiemployer plan] market unfold,” said Stokes. TIAA offers closed MEP products currently.
These are some of the provisions in the Secure Act that would allow companies to create open MEPs and encourage retirement savings:
• Employers would be allowed to join a pooled arrangement that permits, for the first time, different types of employers to collectively offer a plan to their employees (open MEPs).
• Automatic enrollment credit would be provided for small employers. Auto enrollment has been shown to increase employee participation and higher retirement savings.
• The prohibition on contributions to a traditional IRA by an individual who has reached age 70½ would be repealed. This accounts for increases in life expectancy.
• The law would provide the portability of lifetime income options, which will permit participants to preserve their lifetime income investments and avoid surrender charges and fees.
“Right now, really only closed MEPs are permitted in the defined-contribution market because employers need to be in the same industry (have commonality). There are few providers and limited adoption of MEPs because there are so many requirements,” Stokes said.
The Secure Act would change that. Allowing businesses that don’t share commonality to join a MEP, and removing the Department of Labor’s “bad apple” rule, which holds all employers in a MEP liable for the regulatory and financial failings of each employer in the plan, should incentivize businesses to begin looking at this product, she added.
A recent Empower Institute study found that 66 percent of plan sponsors that do not offer a retirement plan are likely to consider an open MEP.
When these small businesses were asked to select the single most important MEP attribute from a list of attributes, they prioritized the variety of plan and fund options (29 percent), and lower costs for both the organization (19 percent) and employees (14 percent).
The survey also revealed that small businesses generally understand the importance of offering a retirement plan, with nearly two-thirds of respondents (63 percent) selecting “it’s the right thing to do” as their top rationale for offering or wanting to offer a plan to their employees. This response edged out business objectives such as employee retention and attracting talent (59 percent).