A new rule from the Department of Labor will narrowly expand the use of multiple employer plans, but it will likely take an act of Congress to broadly allow small employers to band together to offer retirement plans, sources said.
"This is moving the ball forward a little bit but it's not the kinds of sweeping changes that people in (the) industry want to see and I think you'll continue to see a push for legislated open multiple employer plans," said Aron Szapiro, Morningstar Inc.'s director of policy research based in Washington. "It's not like the kind of substantial change that could dramatically reshape the small employer retirement plan marketplace."
On July 29, the Labor Department unveiled a final rule establishing association retirement plans. Under the rule, which was proposed in October 2018 and goes into effect Sept. 30, businesses could band together to offer employees defined contribution plans under limited circumstances. The rule lays out a host of condi-tions a group or association must meet to sponsor MEPs, including a requirement to have at least one substantial business purpose unrelated to offering employee benefits to its employee members. 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.
Currently, businesses are required to have some form of commonality, like a similar location or industry, to form an MEP.
"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 Patrick Pizzella, acting secretary of labor, in a news release. "Association retirement plans offer valuable retirement security to small businesses' employees through their retirement years."
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 join an association's MEP.
What the rule does not do is make it possible for two unrelated employers to go into a plan together — unless they belong to a sponsoring association in the same area — nor does it empower organizations that traditionally offer retirement plans, like financial services firms, to set up a multiple employer plan and start marketing it.