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  2. WASHINGTON
October 22, 2018 01:00 AM

DOL proposes rule for expanding open multiple employer plans

Brian Croce
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    Bloomberg
    Secretary of Labor Alexander Acosta

    The Department of Labor announced a proposed rule Monday that would expand the use of open multiple employer plans.

    Under the proposed rule, small businesses could band together to offer employees defined contribution plans. The plans could be offered by associations of employers in a city, county, state or a multistate metropolitan area, or in a particular industry nationwide, according to a DOL news release. Sole proprietors, as well as their families, would also be permitted to join such plans. Professional employer organizations, which are human resources companies that contractually assume certain employment responsibilities for its client employers, could also sponsor plans, the DOL noted.

    Last week, the Office of Management and Budget approved a DOL proposal that aimed to clarify the statutory definition of employer. The proposed definition includes direct employers "and any other person acting indirectly in the interest of the employer in relation to an employee benefit plan, including a group or association acting for an employer in such a capacity."

    On Aug. 31, President Donald Trump signed an executive order directing officials at the departments of Labor and Treasury to expand retirement savings options by revisiting existing rules on multiple employer plans that require employers to share a common interest.

    "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," said Secretary of Labor Alexander Acosta, in a news release. The proposal would give these employers "a simple and less burdensome way to offer valuable retirement benefits to their employees," he added.

    The DOL said it expects the plans to reduce administrative costs through economies of scale and to strengthen small businesses' hand when negotiating with financial institutions and other service providers.

    The proposed rule is scheduled to be published in the Federal Register Tuesday and will have a 60-day comment period.

    Attorney Kent Mason with Davis & Harman, who represents numerous plan sponsors and service providers, said the proposed rule is very narrow and maintains "very material restrictions on the ability of small employers to join together in a MEP. Thus, while, the proposal is certainly a step forward, it does not in any way eliminate the need for the open MEP legislation being considered by Congress," like the bipartisan Retirement Enhancement and Savings Act of 2018.

    Dave Gray, head of retirement products and solutions at Fidelity Investments, applauded the proposal but said more work needs to be done. "The DOL's proposal is a key step, but without additional changes to address continuing impediments posed by commonality and 'one bad apple' requirements, MEPs and (association retirement plans) will continue to be out of reach for many small employers." Amending the "one bad apple" rule would make it so one employer's mistake does not disqualify the entire MEP.

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