Employment Law Daily DOL Final Rule expands multiple-employer retirement plan access to small businesses
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Wednesday, July 31, 2019

DOL Final Rule expands multiple-employer retirement plan access to small businesses

By Pamela Wolf, J.D.

The final rule provides criteria under which small businesses may join a MEP, either through a group or association or through a PEO.

The Department of Labor has released a final rule, “Definition of ‘Employer’ Under Section 3(5) of ERISA—Association Retirement Plans and Other Multiple-Employer Plans,” that the agency says will expand access to affordable quality retirement saving options by “clarifying the circumstances” under which an employer group or association, or a professional employer organization (PEO), may sponsor a multiple employer workplace retirement plan under Title I of ERISA.

Under the final rule, scheduled for publication in the Federal Register July 31, employer groups or associations and PEOs can, when satisfying certain criteria, be “employers” within the meaning of ERISA for purposes of establishing or maintaining an individual account “employee pension benefit plan.”

Why is being an “employer” important? As an “employer,” a group or association, as well as a PEO, can sponsor a defined contribution retirement plan for its members—commonly known as “multiple employer plans” or “MEPs.” Thus, different businesses may join a MEP, either through a group or association or through a PEO.

The final regulation also permits certain working owners without employees to participate in a MEP sponsored by an employer group or association.

Under the final rule, association retirement plans (ARPs) could be offered by associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide. Retirement plans could also be sponsored by PEOs.

By expressly permitting these new plan arrangements, the rule enables small businesses to offer benefit packages comparable to those offered by large employers. The DOL expects the plans to reduce administrative costs through economies of scale and to strengthen small businesses’ position when negotiating with financial institutions and other service providers.

Who is impacted? The final rule primarily affects groups or associations of employers, PEOs, plan participants, and plan beneficiaries. Not surprisingly, it will not affect whether groups, associations, or PEOs assume joint-employment relationships with member-employers or client employers. But it may affect banks, insurance companies, securities broker-dealers, record keepers, and other commercial enterprises that provide retirement-plan products and services to ERISA plans and plan sponsors.

Expanding access. The DOL said that “expanding access to workplace retirement plans is critical to helping more American workers financially prepare to retire.” The department noted that about 38 million private-sector employees do not have access to a retirement plan through their employers. The Bureau of Labor Statistics found that 23 percent of all private-sector, full-time workers have no access to a workplace retirement plan—that percentage increases to 32 percent when part-time workers are included.

Small businesses are less likely (than large employers) to offer retirement benefits, the DOL explained. In 2018, about 85 percent of workers at private-sector establishments with 100 or more workers were offered a retirement plan. However, only 53 percent of workers at private-sector establishments with fewer than 100 workers had access to such plans. Access to an employment-based retirement plan is critical to the financial security of aging workers. Where workers do not have access to a workplace retirement plan, only about 13 percent regularly contribute to individual retirement accounts (IRAs).

The DOL also pointed out that cost and regulatory complexity discourage employers, especially small businesses, from offering workplace retirement plans for their employees. Establishing and maintaining a plan can be expensive for a small business.

The final rule is effective September 30, 2019.

“Less than a year ago, President Donald J. Trump signed an Executive Order focused on expanding quality, affordable workplace retirement plan options for America’s small businesses and their employees,” Acting Secretary of Labor Patrick Pizzella said in a statement. “Many small businesses would like to offer retirement benefits to their employees, but are discouraged by the cost and complexity of running their own plans. Association Retirement Plans offer valuable retirement security to small businesses’ employees through their retirement years.”

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