Citing a 2018 report by the U.S. Bureau of Labor Statistics that approximately 38 million private sector employees in the United States lack access to employer-sponsored retirement savings plans, the U.S. Department of Labor announced on July 29, 2019 a “Final Rule” to allow small and midsized businesses to band together to offer retirement plans to their employees through Association Retirement Plans (ARPs). These plans are also referred to as multiple employer plans, or MEPs.
The Final Rule, which goes into effect September 30, 2019, will enable small and midsized businesses to gain access to retirement benefit packages through ARPs, thus reducing administrative costs through the economics of scale and strengthening small businesses’ negotiating abilities with financial institutions and other service providers.
The Final Rule clarifies that ARPs can cover employers not just in the same industry, but also in the same geographic area, such as a common state, city, county or metropolitan area (even if it crosses state lines). Business owners without employees, including sole proprietors, can also participate. The Final Rule includes a regulatory safe harbor for Professional Employer Organizations (PEOs) that want to offer retirement options.
Before the Final Rule was issued, the DOL permitted only “closed” MEPs, in which participating employers shared a common relationship, such as being members of an established trade association. Under the new rule, employers can join an ARP as long as they meet one of the following criteria:
Operate in a common city, county or state—or in a multistate metropolitan area—regardless of trade, industry or profession.
Operate in the same trade, industry or profession, regardless of where they are located.
Included in the Final Rule is a “Request for Information” (RFI) for what is called Open MEPs, or Multiple Employer Plans that would cover employees of unrelated employers. The goal is to provide small businesses with a cost-efficient way of offering retirement savings opportunities to all workers.
The DOL has continuously taken the position that a group or association of employers must have what is called “commonality” to act as sponsoring employers of a combined ERISA plan. Responses to this RFI are due by October 29, 2019.
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