Strengthening Retirement Security in America

Overview

Executive Order 13847, issued on August 31, 2018, by President Donald Trump, is aimed at strengthening retirement security in America. Recognizing the challenges many American workers face in securing sufficient retirement savings, the order addresses the gap in workplace retirement plan availability, particularly among small and medium-sized businesses. The Bureau of Labor Statistics noted that a significant percentage of private-sector workers lack access to such plans, with 23 percent of full-time and 34 percent of part-time workers not having retirement plan options. This discrepancy is further highlighted in smaller businesses, where only 53 percent of workers have access to retirement plans compared to 89 percent in larger firms.

The executive order seeks to reduce regulatory barriers that discourage employers, especially small businesses, from establishing such plans. It emphasizes expanding access to Multiple Employer Plans (MEPs) as a mechanism to simplify plan creation and maintenance, thereby reducing administrative costs. MEPs allow employees from different corporations to participate in a single retirement plan, facilitating broader availability of retirement benefits. Regulatory simplification includes exploring the reduction of notice and disclosure complexity, which currently might dissuade plan establishment due to the compliance burden and associated costs.

Additionally, the order directs federal agencies to scrutinize current distribution mandates that may compel retirees to withdraw funds at rates that could jeopardize their long-term financial stability. Such mandates could leave retirees with inadequate savings in later years. By addressing these inefficiencies, the Trump administration aimed to bolster the retirement security of American workers and align policies with modern employment structures, including non-traditional employment models.

Legal and Policy Implications

The executive order mandates a review and potential revision of existing regulations related to employer-sponsored retirement plans under ERISA and the Internal Revenue Code. This involves the Department of Labor clarifying conditions under which businesses can participate in MEPs. The order encourages these regulatory bodies to issue new guidance that simplifies the criteria small and mid-sized businesses must meet to establish these plans, ostensibly breaking down barriers imposed by existing legislation.

Furthermore, the executive order calls for a reassessment of qualification requirements for MEPs under the Internal Revenue Code of 1986. This includes evaluating the consequences for non-compliant employers and aligning the tax qualification aspects to enable increased participation without encountering excessive penalties. The Treasury Department, in consultation with the Department of Labor, bears the responsibility of aligning these policies with broader federal initiatives while ensuring adherence to fiscal laws.

The order also focuses on improving the effectiveness and reducing the costs associated with retirement plan disclosures required by ERISA and the Internal Revenue Code. This involves reconsidering the use of electronic delivery for plan information, which could modernize communication means and lower the financial and operational burden on employers. Such policy shifts are intended to modernize regulatory frameworks to reflect technological advancements and economic realities, although their execution remains contingent on legislative compliance and inter-agency cooperation.

Who Benefits

Small businesses stand to benefit significantly from this executive order. By simplifying the regulatory environment and reducing the costs and complexity of establishing retirement plans, small and mid-sized enterprises are better positioned to offer retirement benefits to their employees. This move can enhance employee retention and attract talent, thus promoting business growth and sustainability.

Employees of small and medium-sized businesses, particularly those in non-traditional work arrangements such as part-time workers and freelance contractors, are another group that stands to gain. The expanded access to MEPs ensures that workers who may not traditionally qualify for employer-sponsored retirement plans can also save for their future. This enhanced coverage is particularly critical in today’s labor market, where gig economy jobs and flexible work arrangements are increasingly prevalent.

Additionally, the financial services industry, including firms specializing in the administration and management of retirement plans, could see an uptick in business. As more businesses gain confidence in managing retirement plans due to reduced regulatory burdens, the demand for professional services to set up and manage these plans might increase, boosting the sector's revenue and employment.

Entrepreneurs and sole proprietors also stand to benefit from the order's emphasis on expanding retirement security to non-traditional employment models. By potentially allowing these individuals to join MEPs, the order supports financial independence and promotes a savings culture among those not tied to traditional employment structures. In a broader sense, the order accentuates the federal government’s commitment to supporting the economic resilience of these workers.

Lastly, the broader economy may experience positive effects as enhanced retirement savings translate into increased financial security among workers. This could result in reduced reliance on social safety nets and enhanced consumer spending, thereby contributing to economic growth.

Who Suffers

While the order primarily seeks to enhance retirement security, it might inadvertently disadvantage traditional standalone retirement plan providers who rely on more complex and costly plan structures to maintain business. As small businesses gravitate toward the simplified MEP model, providers of traditional plans may face reduced demand, compelling them to rethink business strategies and adapt to changing market dynamics.

A potential downside might also exist for workers in businesses not eligible or willing to participate in MEPs, particularly if the existing structures of standalone plans become less prevalent. Employees in these settings might experience reduced plan options or coverage gaps, relying on possible future legislative efforts to address such disparities.

Plan fiduciaries and administrators, accustomed to operating under established regulations, could face transitional challenges as they recalibrate processes to accommodate new policies. Despite long-term cost reductions, the initial phase of transition to new regulatory frameworks may incur unexpected expenses, impacting small fiduciary businesses unevenly.

Complexities may arise in distinguishing those entities eligible to aggregate under MEPs from those that are not, potentially leading to compliance challenges. Regulatory clarity or lack thereof can create hurdles for some businesses, delaying the intended benefits of the executive order. Legal advice may become necessary for some entities to navigate these changes, thus leading to increased operational costs.

Finally, workers and smaller companies that initially rely on existing retirement structures might find themselves in a temporary period of uncertainty during the transition to new frameworks. This instability could have broader effects on worker confidence in retirement savings strategies.

Historical Context

This executive order is consistent with the broader deregulatory agenda pursued by the Trump administration, which aimed to streamline federal oversight and reduce the regulatory burden on businesses. By addressing retirement savings, the order aligns with policy priorities focusing on economic growth, labor market flexibility, and the removal of regulatory obstacles perceived as impediments to business success.

Previous administrations have also identified retirement security as a significant policy area, albeit with differing approaches. While the Obama administration emphasized the expansion of retirement plan coverage through state-sponsored initiatives and employer mandates, the Trump administration concentrated on reducing regulatory complexity to inspire private sector solutions focused on smaller businesses.

The order’s push for expanding MEPs traces back to a need to modernize traditional retirement saving strategies amidst a changing employment landscape. Traditional models often fail to account for current trends in employment, such as the gig economy and non-traditional work arrangements, making this order relevant in an evolving economic context.

In the broader political context, the order may be seen as an effort by the Trump administration to consolidate support among small business constituents, a critical voting bloc. By addressing key challenges faced by this group, the executive order reflects an alignment of economic policy with political strategy, appealing to core conservative values of free enterprise and minimal government intervention.

Historically, the approach to retirement security has been shaped by shifts in economic conditions and demographic changes, necessitating adaptations in policy. This order sits within a lineage of legislative and executive efforts to address the financial preparedness of America’s aging workforce in the context of extended life expectancies and changing labor patterns.

Potential Controversies or Challenges

Despite the intention to enhance retirement security, some potential challenges may hinder the executive order's full implementation. Legal ambiguities surrounding the eligibility of businesses to participate in MEPs could lead to disputes and necessitate further rule clarification by responsible agencies. The complexity of existing retirement laws might also impede swift policy changes, requiring intricate legal navigation to ensure compliance.

Congressional oversight entities may critique the executive order for its potential to dilute consumer protections embedded within existing regulations. Lawmakers who favor maintaining robust employee protections might argue that easing regulatory requirements could inadvertently compromise plan integrity and participant security, sparking partisan debates over the proper balance of regulation and market freedom.

The judiciary might also face cases testing the legal interpretation of ERISA provisions under the new settings established by the order. Such legal challenges could delay the anticipated reforms and introduce an element of uncertainty for businesses planning to adopt new retirement solutions.

Furthermore, the efficacy of increasing electronic disclosure could be met with opposition on privacy grounds. As data protection becomes increasingly pertinent, any shift to digital communications invites scrutiny of safeguarding participant information, potentially triggering debates over appropriate privacy standards and legislative protections.

Finally, any significant change in retirement plan regulations opens the possibility of administrative and practical challenges during implementation. These challenges must be navigated carefully to ensure that the intended benefits of the order are realized in practice, without unintended negative consequences for either employers or employees.