DOL Seeks to Expand Access to ‘Association Retirement Plans’

These plans allow small businesses within a business group or association to join together to offer defined contribution retirement savings benefits.

Under the direction of President Trump, the Department of Labor (DOL) is seeking to make it easier for small businesses to form association retirement plans, which permit them to join together to offer defined contribution (DC) plans within a single administrative framework.

To this end, the DOL has published a set of proposed regulations under Title 29 of the Code of Federal Regulations to expand access to retirement saving options by clarifying the circumstances under which an employer group, association, or professional employer organization (PEO) may sponsor a workplace retirement plan. In particular, the proposed regulation clarifies that employer groups or associations and PEOs can, when satisfying certain criteria, constitute “employers” within the meaning of Section 3(5) of the Employee Retirement Income Security Act (ERISA) for purposes of establishing or maintaining an individual account “employee pension benefit plan” within the meaning of ERISA Section 3(2).

As an “employer,” a group or association can sponsor a defined contribution retirement plan for its members, as can a PEO sponsor a plan for client employers (collectively referred to as “MEPs”). The proposed regulation would allow different businesses to join a MEP, either through a group or association or through a PEO. According to the DOL, PEOs will contractually assume administrative responsibilities for their client employers.

“President Donald J. Trump is moving to expand quality, affordable workplace retirement plan options for America’s small businesses and their employees,” said Secretary of Labor Alexander Acosta. “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 give these employers a simple and less burdensome way to offer valuable retirement benefits to their employees. The proposed rule helps working Americans and their families take care of themselves in their retirement years.”

The DOL notes that 38 million Americans do not have access to workplace retirement plans. Association retirement plans would permit companies within a city, county, state or multi-state metropolitan area, or within a particular industry, to band together. Sole proprietors, as well as their families, would also be permitted to join such plans. According to the DOL, PEOs generally are going to be human resource specialist companies.  

DOL says that the proposal would enable small businesses to offer benefit packages comparable to those offered by large employers. DOL expects the plans to reduce administrative costs through economies of scale and to strengthen small businesses’ hands when negotiating with financial institutions and other providers.

MEPs have long been a focal point for the retirement plan industry, but the topic gained traction when, earlier this year, President Trump ordered the DOL to address the issue directly. Important to note, this proposal does not address “open MEPs,” described by analysts and experts as one of the primary ways to address the retirement plan coverage gap among employees of small businesses. This step comes after, earlier this month, the Office of Management and Budget finished its review of DOL’s MEP proposal, calling it “major” and “economically significant.”  

Some experts have suggested, should the push to expand multiple employer plans find success, this could result in many more small businesses offering MEPs—which will in turn open up new opportunities and challenges for advisers, as well as for their existing plan sponsor clients.