Interlocking puzzle pieces

Retirement Plan Access Expanding for Small Businesses

According to the U.S. Department of Labor (DOL), approximately 38 million private-sector employees do not have access to a retirement plan through their employer due to high administrative costs and burdensome compliance requirements. The DOL recently took steps to ease this burden by issuing a final rule that helps small businesses provide employees with retirement plan access.

Through the clarification of what constitutes an “employer”, the DOL’s ruling now allows more small businesses to join together to offer a retirement plan to their employees. A bona fide group, association or professional employer organization (PEO) can now act as an “employer” and sponsor a defined contribution retirement plan for its members. These plans are collectively referred to as multiple employer plans (MEPs) and this ruling, which goes into effect on September 30, 2019, specifically authorizes multi-employer plans (MEPs) through two arrangements:

  • Association retirement plans (ARPs): formed when existing organizations such as local chambers of commerce or associations join to administer the MEP.
  • Professional employer organizations (PEOs): contractually assume many employment responsibilities for their client employers. The final rule provides clear authorization for PEOs to form MEPs by creating a new safe harbor under the Employee Retirement Income Security Act (ERISA), which governs employer-sponsored retirement plans.

Opening Up MEPs

Prior to this final rule, the DOL only permitted “closed” MEPs in which participating employers had to share “a nexus of interests” or common relationships, such as being members of an established trade association. Under the new rule, the expanded parameters allow employers to join an ARP if they meet one of the following criteria:

  • Operate in a common city, county or state—or in a multistate metropolitan area—regardless of their trade, industry or profession.
  • Operate in the same trade, industry or profession, regardless of where they are located.

Further Efforts

In May, the House of Representatives passed legislation to further open MEPs to unrelated employers via the Setting Every Community Up for Retirement Enhancement (SECURE) Act. An important component of the SECURE Act is penalty protections for companies in MEP when other members violate fiduciary rules.

The SECURE Act would allow businesses that aren’t located in a common geographic area and don’t share a common trade, industry or profession, to join an MEP. Additionally, the SECURE Act would allow MEPs to be administered by a “pooled plan provider”, such as a financial services firm, in addition to associations or PEOs.

Liability risk to the entire plan because of one member’s failure to comply with the MEP rules has been a major roadblock to MEPs. This has been addressed in the SECURE Act and now only the employer-participant in violation of the rules would be responsible for those violations.

The SECURE Act has not moved forward in the Senate; however, supporters are hopeful for a ruling by year-end that would establish the structure for a true open MEP.

If you have questions about how this may affect your small business or whether an MEP makes sense for your business, contact a member of our Retirement Plan Advisory Team.

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