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DOL Small Business Retirement Plan Rule Not The Cure-All That’s Needed

Ashlea Ebeling
Ashlea Ebeling Forbes Staff
Retirement
I write about how to build, manage and enjoy your family's wealth.
Couple dancing at anniversary party on cabin balcony in woods

If you're a small business owner, it's time to rethink your retirement plan.

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In a nod to the small business community, the Department of Labor issued a final rule earlier this week that may nudge more employers to offer joint retirement plans—MEPs—but it’s not all that employers were hoping for. “This is NOT the MEPs that everyone has been so excited about,” says Nevin Adams, chief of marketing for the American Retirement Association via email.

The DOL rule, effective September 30, allows companies in different industries to band together to create a joint retirement plan (a 401(k) or profit-sharing plan) if they are in the same geographic area. For example, the Dallas Chamber of Commerce could sponsor a MEP under the new rule, says Erin Turley, an employee benefits lawyer with McDermott Will & Emery in Dallas, Texas. It also clarifies that Professional Employment Organizations (benefits providers) that sponsor MEPs are okay to be doing so (it was a grey area under DOL regs before). And there’s a new exception that lets worker/owners without employees into PEO MEPs. Before, employers had to have a commonality of interest to form a MEP: An engineering association, for example, could have a “closed” MEP for its members. So, the rule is basically an expansion of existing MEPs—sometimes branded as Association Retirement Plans.

What small businesses really want is “open” MEPs, or plans that cover employees of employers with no relationship other than their joint participation in the MEP. The DOL says that this issue deserves further consideration, and at the same time it issued the final rule, it issued a Request for Information on Open MEPs. One big question: If commercial financial services firms can sponsor an Open MEP, what conflicts of interest arise that could harm retirement savers? Another avenue: Legislation is pending in Congress that could give Open MEPs a boost by creating Pooled Employer Plans or PEPs in one provision in the stalled SECURE Act.  (Here’s what else is in the big retirement bill).

Technically, what the DOL rule does is broaden the definition of employer. So, “bona fide” employer groups or associations and Professional Employer Organizations (PEOs) may act as an “employer” for purposes of sponsoring a MEP. The idea is that by banding together they can negotiate lower fees and pass those cost savings on to employees.

Note: These multiple employer plans are not to be confused with the faltering defined-benefit multiemployer plans, which face severe funding shortfalls putting 10 million union workers’ retirement prospects at risk, that Congress is trying to figure out how to rescue.

The DOL rule is a good first step, says Turley, and may help some small businesses. A small employer client founder with 130 employees already reached out to her as he is looking to move to a PEO for healthcare and hoping that switching the company’s 401(k) to a PEO would save costs too. Companies that don’t have a 401(k) plan at all will be the first movers. “This is a solution they need,” she says.

There’s no question there is a lack of coverage: more than 28 million full-time private sector employees and more than 23 million part-timers do not have access to a workplace 401(k) retirement plan, according to the American Retirement Association.

Why won’t these plans be adopted wholesale? With a MEP the employer offloads the plan administrator role and that fiduciary responsibility. But the employer is still the plan sponsor and has that fiduciary role. That’s something else that the DOL RFI hopes to address.

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Summary | 5 Annotations
In a nod to the small business community, the Department of Labor issued a final rule earlier this week that may nudge more employers to offer joint retirement plans—MEPs—but it’s not all that employers were hoping for. “This is NOT the MEPs that everyone has been so excited about,” says Nevin Adams, chief of marketing for the American Retirement Association via email.
2019/08/01 16:12
Texas. It also clarifies that Professional Employment Organizations (benefits providers) that sponsor MEPs are okay to be doing so (it was a grey area under DOL regs before). And there’s a new exception that lets worker/owners without employees into PEO MEPs. Before, employers had to have a commonality of interest to form a MEP: An engineering association, for example, could have a “closed” ME
2019/08/01 16:12
Technically, what the DOL rule does is broaden the definition of employer. So, “bona fide” employer groups or associations and Professional Employer Organizations (PEOs) may act as an “employer” for purposes of sponsoring a MEP. The idea is that by banding together they can negotiate lower fees and pass those cost savin
2019/08/01 16:12
There’s no question there is a lack of coverage: more than 28 million full-time private sector employees and more than 23 million part-timers do not have access to a workplace 401(k) retirement plan, according to the American Retirement Association.
2019/08/01 16:12
offloads the plan administrator role and that fiduciary responsibility. But the employer is still the plan sponsor and has that fiduciary role. That’s something else that the DOL RFI hopes to address.
2019/08/01 16:12