MFS DC VIEW: Year in Review 2017

This special edition of DC View includes a recap of significant defined contribution events throughout 2017, as well as an outline of what we expect 2018 to bring. 

Kristen E. Colvin

Director, Investment Solutions Group

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Peter A. Delaney

Director, Investment Solutions Group

2017: Notable Issues and Actions

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Q1 / February 3, 2017: The Retirement Security for American Workers Act was introduced, calling for the IRC and ERISA to modify the qualification requirements for certain multiple employer retirement plans (MEPs). Under this bill, a MEP may not be disqualified or lose its tax-favored status as a result of one or two participating employers failing to take actions required with respect to the plan.

Q1 / February 15, 2017: The American Savings Account Act of 2017 was introduced, requesting the IRC to establish a new retirement option for all employees and self-employed individuals. It is designed to operate in a manner similar to the Thrift Savings Plan, which is available to federal employees, with an American Savings Account Board of Directors formed to establish policies for fund investment and management.

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Q2 / May 17, 2017: President Trump signed legislation revoking the Department of Labor’s auto-IRA safe harbor rule, making it harder for states to adopt state-run retirement plans. The House of Representatives and Senate previously voted to nullify the rule. California will move forward despite the loss of the ERISA safe harbor.

Q2 / June 8, 2017: The House of Representatives passed the Financial Choice Act, which is designed to replace the Dodd-Frank Act and block the DOL fiduciary rule.

Q2 / June 9, 2017: The DOL Fiduciary rule officially took effect and is expected to phase in through January 1, 2018. Full implementation of all elements of the rule is expected to occur by July 1, 2019.

Q2 / June 30, 2017: Connecticut’s governor, Dannell Malloy, signed House Bill 7161 to improve 403(b) plan fee transparency. Under this bill, all 403(b) providers are required to disclose to state and municipal workers the fee ratio and net return for all plan investment funds. This legislation will be implemented in 2019.

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Q3 / July 1, 2017: Oregon launched its pilot program of “OregonSaves,” becoming the first state to begin a state-based IRA program. Oregon employees who do not have access to an employer-based retirement plan are eligible to join the program. The program will begin more broadly in 2018.

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Q4 / October 19, 2017: The Internal Revenue Service (IRS) announced higher contribution limits for 2018. Workers will be able to contribute $18,500 to their 401(k) plans, up from $18,000 for 2017.

Q4 / November 2, 2017: House Republicans released a tax overhaul bill, an attempt at the most thorough transformation of the US corporate tax code in three decades. The Tax Cuts and Jobs Act left pretax contribution limits to 401(k) retirement plans alone in the current version. While opponents of the measure expressed relief, many said they remained concerned the provision could return in a later version of the bill.

 

2018 regulatory initiatives

  • The US tax bill is likely to be passed in 2018. If it is passed, MEPs are likely to expand dramatically. The bill acknowledges that adopters within a 413(c) multiple employer plan are not to be separated out with individual filing responsibilities and treated as separate plans. The current requirement for Open MEPs requiring plan audits and an individual ERISA Bond will disappear, which will reduce the annual plan audit fees by 90% or more.
  • States seem to be driving momentum towards better 403(b) disclosures for participants. In August 2017, the deputy Republican leader of the Democrat-controlled Assembly filed a bill that would require 403(b) disclosures in New Jersey, following Connecticut’s suit.
  • The Senate Committee on Health, Education, Labor and Pensions is still in the process of hiring an EBSA head to oversee DC regulations. There are currently 11 projects within DOL in various stages of review and approval that this new appointee will have to administer.

QuickFacts

  • Several states are moving forward with state-run retirement programs despite opposition from the White House. Eight states — Oregon, Illinois, Maryland, Connecticut, Massachusetts, New Jersey, California and Washington — passed or are in the process of passing legislation to create state-run plans for private-sector employees who do not have a savings program at work. The legislation will require employers of a certain size to offer either a private sector or state-auto IRA workplace plan. Another 30 states are considering establishing state-run retirement programs.
  • Employees are possibly missing out on thousands of dollars in matching contributions. Over the past year, employees contributed a record average of $5,860 to their 401(k) plans; yet, many (about 21%) are still not taking full advantage of their employers’ matching contributions.
  • A new report by the Congressional Budget Office dissects the current methods used for measuring the adequacy of retirement income and provides a framework for further analysis. The report questions whether the retirement replacement measure should be based on meeting your basic expenses in retirement, or if it should be based on maintaining your pre-retirement standard of living.
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2017 MFS Global Retirement Income Survey Methodology
Base: UK Members: 700; UK Retirees: 300
Mode: 15-minute online survey
Sponsorship: MFS was not identified as research sponsor.
Field period: May 30 – June 13, 2017
Weighting: Data were weighted in each country to reflect the age/gender balance of retiree and participant populations. In the UK:
Retiree, Office of National Statistics 2014 balanced gender within each age group: Participant is unweighted — no datasets available.
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This material is provided for general and educational purposes only and is not investment advice. The investments you choose should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities or investment related service or product, including any investment product or service described in these materials.
The views expressed in this report are those of MFS® and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any other MFS investment product.
Unless otherwise indicated, logos and product and service names are trademarks of MFS® and its affiliates and may be registered in certain countries.

 

This content is directed at investment professionals only.

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