The White Househas yet to publish a copy of the executive order, but it is widelybelieved Labor will act to remove the commonality requirement andthe one-bad-apple rule. (Photo: Mike Scarcella/ALM)

An executive order signed by President Trump in Charlotte, NorthCarolina instructs the Labor Department to craft guidance thatwould relax existing restrictions on Open Multiple Employer Plans.

MEPs allow groups of small employers to pool workers into one 401(k) plan, allowingthem to achieve economies of scale on investment, record keeping,and administration fees and costs.

They also relieve employers of reporting requirements to theLabor Department, and allow MEP providers to share employers'fiduciary requirements under the Employee Retirement IncomeSecurity Act.

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But existing regulations, established under the ObamaAdministration, require employers to share commonality, or a nexus,such as membership in a trade group, to gain the full benefits ofMEPs.

And a so-called “one bad apple” rule subjects MEPs todisqualification if one participating employer fails to meetadministrative requirements.

The White House had yet to publish a copy of the executive orderby the end of the event in Charlotte, but it is widely believedLabor will act to remove the commonality requirement and theone-bad-apple rule, potentially paving the way for widersponsorship of 401(k) plans among employers that currently don'toffer the benefit, and access for smaller employers that do offer aplan to options with considerably lower investment management andadministration costs.

“Retirement plans will now be available to more Americans thanever before,” President Trump said at the event.

The prospect of relaxing access requirements to MEPs hasbipartisan support on Capitol Hill. Open MEPs are a cornerstoneprovision of the Retirement Enhancement Security Act, which passedout of the Senate Finance Committee by a unanimous vote in2016.

Companion bills have been reintroduced in both chambers thisyear. The House Ways and Means Committee is aiming to packageRESA's proposals on MEPs into a second tax reform package, which isexpected to be introduced in coming days.

While Congress has been clear in its willingness to stimulatewider adoption of retirement savings plans through MEPs, today'sexecutive order took many in industry by surprise.

“This is not the way any of us expected this to happen,” saidTroy Tisue, president of TAG Resources, a Knoxville,Tennessee-based provider of MEPs. “This is a big day.”

Terry Power, president and CEO of The Platinum 401k, aClearwater, Florida-based MEP provider, said today's action has thepotential to be a “total game changer.” “It's good news foremployers, and good news for plan advisors and record keepers thatunderstand the opportunity.”

Potential for substantial savings

MEPs cover around 4.5 million retirement savers, according toMorningstar research.

While more than 90 percent of large employers sponsor a 401(k)plan, data from the Bureau of Labor Statistics estimates that only48 percent of employers with fewer than 50 employees sponsor aplan.

Small employers—and their employees—pay a premium on retirementplans.

Plans with less than $1 million in assets pay an average of 142basis points in investment fees, for instance. By comparison, planswith more than $1 billion in assets pay an average of 37 basispoints, according to Morningstar research. The difference cantranslate to an account with 20 percent less in accrued savings byretirement.

When employers aggregate participants under one MEP, those costsare dramatically reduced.

The executive order also instructs the Treasury Department toreview existing rules on required minimum distributions from 401(k)plans and traditional IRAs.

Under existing law, tax-preferred account owners are required tostart drawing down savings from retirement plans at age 70 ½.

The order also instructs Labor and Treasury to examineelectronic delivery options for retirement savers to reduceadministrative costs.