DOL Looks To Expand Retirement Plan Options For Small Businesses
In an effort to make it easier for small businesses to form association retirement plans, President Donald Trump and the Department of Labor have proposed regulations that will ultimately allow small businesses to band together in an effort to give more workers access to workplace retirement plans. The associate retirement plans (ARP) are defined contribution plans that are structured when businesses pool together under a single administrative umbrella. This particular initiative is on track to be one of the most significant changes to the retirement landscape in more than a decade.
Currently, association retirement plans are only available for professional employer associations (PEO) or certain employers within the same industry that sponsor a plan for client employers as one multi-employer plan (MEP). These types of retirement plans are often formed among unions and other associations.
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The proposed federal regulations seek to expand access to retirement plan options by opening up the rules under which an employer group or organizations can sponsor workplace retirement plans. They also include a new interpretation of the definition of “employer” in the Employment Retirement Income Security Act (ERISA).
Under the new rules, a retirement plan could be sponsored by an employer association or a professional employer organization (PEO) as they would be considered an “employer.” This way, unaffiliated businesses in different industries (but with common economic interests) will be able to join an MEP with one administrator through a group, association or PEO. The PEOs will assume administrative responsibilities for their client employers. ARPs could then be formed by employers within a geographic region such as a city, county, state, or metropolitan area, as well as by employers in a particular industry nationwide. Sole proprietors, as well as their families, could also join such plans. The DOL estimates that PEOs will generally be human resource specialist companies.
According to the DOL, there are nearly 38 million Americans who do not have access to workplace retirement plans. If passed, these new regulations will expand solid, affordable retirement plan options for small businesses and their employees. Oftentimes, small companies are unable to provide retirement benefits due to the cost and complexity of running the plans. The proposed regs offer a simple, less complicated option to offer valuable retirement benefits to employees. This not only helps Americans take care of themselves and their families after retirement, it helps small businesses attract and retain employees by offering benefits comparable to larger employers. In addition, administrative costs will likely be reduced through MEPS.
Overall, this proposal has been on a fast track and met with mostly positive feedback. Should the expansion of MEPs be successful and more businesses offer MEPs, there will likely be more challenges and opportunities for advisers and their existing plan sponsor clients. Plan representatives will have to learn the ins and outs of the new regulations in order to explain how they might affect companies and help determine whether joining a MEP would be a beneficial strategy for their workforce. All service providers from recordkeepers to TPAs to auditors will also need to be aware of this new offering and how it would impact their approach for working with these types of plans.
By Darlene Finzer, CPA, CSA, QKA (New Philadelphia office)