The Department of Labor proposed a rule that would narrowly expand the use of open multiple employer plans, but leaves room for improvement, industry sources said.
The move comes less than two months after President Donald Trump signed an executive order directing officials at the departments of Labor and Treasury to expand retirement savings options.
Under the proposed rule, released Oct. 22, small businesses could band together to offer employees defined contribution plans, under limited circumstances. The proposal lays out a host of conditions a group or association must meet to be permitted to sponsor MEPs, including a requirement to have at least one substantial business purpose unrelated to offering employee benefits to its employee members, and one that requires sponsors to have members with a commonality of interests with respect to their industry or location. If finalized, 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. Self-employed individuals would be able to belong to an association and join an MEP.
What the proposal does not do is make it possible for two unrelated employers to go into a plan together — unless they belong to an association in the same area — nor does it empower any of the kinds of organizations that traditionally offer retirement plans, like financial services firms, to set up an MEP and start marketing it, said Aron Szapiro, Morningstar Inc.'s director of policy research based in Washington.
Attorney Kent Mason with Davis & Harman, who represents numerous plan sponsors and service providers, said the proposed rule is narrow and maintains "very material restrictions on the ability of small employers to join together in an MEP."
The proposed rule keeps in place the criteria for how much commonality employers in any one plan must have, and doesn't amend the "one bad apple" rule, which means one employer's mistake would disqualify the entire MEP.
Mr. Szapiro said the DOL is looking to expand the availability of MEPs in "novel ways without totally getting rid of the common nexus requirements, which it doesn't seem that they have the ability to do without Congress amending ERISA in some way. So they went in a direction with these (professional employer organizations), which is a clever way of expanding the availability of MEPs within the current constructs."
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.
Elizabeth Kelly, senior vice president of operations at United Income, a Washington-based investment advisory firm for investors 50 and older, and former special assistant to the president at the White House National Economic Council under President Barack Obama, said the proposal is a "good step forward in enabling more small businesses to offer retirement savings plans to their employees. We'll likely see additional action."