Inside: What Trump’s 401(k) Executive Order Could Mean for Investors
On August 31, 2020, President Trump signed an executive order aimed at expanding multiple employer plans (MEPs) and association retirement plans. The move is expected to impact the retirement savings landscape, particularly for small businesses and self-employed individuals.
Key Provisions of the Executive Order
The executive order directs the Department of Labor (DOL) to consider expanding the types of businesses that can band together to offer a single, pooled 401(k) plan. The goal is to make it easier for small businesses to offer retirement plans to their employees, thereby increasing retirement savings rates.
- Expansion of MEPs: The order encourages the DOL to broaden the definition of “employer” under the Employee Retirement Income Security Act (ERISA) to allow more businesses to join together to offer a single plan.
- Association Retirement Plans: The order also promotes the creation of association retirement plans, which allow businesses to pool their resources to offer retirement plans to their employees.
- Reduced Regulatory Burden: The DOL is directed to reduce the regulatory burden on small businesses and MEPs, making it easier for them to offer retirement plans.
Potential Impact on Investors
The executive order has the potential to significantly impact the retirement savings landscape. If successful, it could lead to:
- Increased Retirement Plan Access: By making it easier for small businesses to offer retirement plans, more employees may have access to 401(k) plans or other retirement savings vehicles.
- Lower Costs: Pooled plans can often negotiate lower fees due to their larger size, potentially reducing costs for participants.
- More Investment Options: As MEPs and association retirement plans grow, they may be able to offer a wider range of investment options to participants.
However, there are also potential risks to consider. For example:
- Lack of Regulation: As the DOL expands MEPs and association retirement plans, there is a risk that some plans may not be subject to the same level of regulation and oversight as traditional 401(k) plans.
- Fiduciary Liability: Plan sponsors and fiduciaries may face increased liability as they take on more responsibility for managing the plans.
What’s Next?
The DOL is expected to issue guidance and regulations implementing the executive order in the coming months. Investors should stay tuned for updates on how the rule changes will be implemented and what it may mean for their retirement savings.
While the executive order is a step in the right direction, its impact will depend on the specifics of the regulations that are ultimately put in place. Investors should remain vigilant and monitor developments closely to understand how the changes may affect their retirement plans.
