Group acting to plug a gap in retirement

The U.S. Chamber of Commerce is working to close the retirement coverage gap by bringing together small businesses, service providers, and state and local chambers.

The effort comes on the heels of a Department of Labor rule finalized in September allowing businesses to band together to offer employees defined contribution plans, under limited circumstances. The rule, which was proposed in October 2018, lays out a host of conditions groups or associations must meet to be permitted to sponsor multiple employer plans, 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. The plans could be offered by employer associations in a city, county, state or a multistate metropolitan area, or in a particular industry nationwide.

While the U.S. Chamber of Commerce cannot offer an association retirement plan, state and local chambers can.

"If the state and local chamber takes on a lot of the responsibilities for setting up those plans, it really frees up the time and effort for the small employers to make sure that their employees have a retirement plan but that small employer is not taking on all the compliance obligation, all the legal liabilities," said Chantel Sheaks, executive director of retirement policy at the U.S. Chamber of Commerce in Washington.

The U.S. Chamber has launched what Ms. Sheaks calls a "portal" for chamber members interested in learning more about association retirement plans and connecting small employers with local chambers and service providers.

The portal is currently live, but Ms. Sheaks said it's still in its early stages as the U.S. Chamber amasses more stakeholders interested in participating.

"What we're hoping to do over time is build that up to have a tool and resource area for chambers and also the general public so they can understand what association retirement plans would do for them, how they work and how you'd get into one," Ms. Sheaks said.

In recent years, the rise in litigation against retirement plan fiduciaries has been an impediment for small employers considering starting a plan, but the main culprit is costs, according to Ms. Sheaks.

A survey of small business owners published in April from SCORE Association, a non-profit organization devoted to mentoring small businesses, found that 71% of businesses that do not offer retirement plans report that plan setup is too expensive and 63% do not have the resources to administer such plans.

In announcing its finalized rule in September, a senior Labor Department official said the rule is expected to reduce administrative costs through economies of scale and strengthen small businesses' hand when negotiating with financial institutions and other service providers.

"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, then-acting secretary of labor and current deputy secretary, in a news release accompanying the final rule. "Association retirement plans offer valuable retirement security to small businesses' employees through their retirement years."

While there are roughly 1,500 state and local chambers of commerce, several of which currently looking into launching an association retirement plan, only one has taken concrete steps to do so, Ms. Sheaks said.

The Las Vegas Metro Chamber of Commerce got the ball rolling on its association retirement plan even before the Labor Department finalized its rule, and allowed members to join as soon as the rule became effective on Sept. 30. The plan will officially launch Jan. 1.

The chamber put out a request for proposals late last year to service providers and ultimately selected Caldera Wealth Management Group, a Las Vegas-based firm led by Joe Caldera, who serves as president of the firm and is an 18-year chamber member, as the plan adviser.

In putting together Caldera Wealth's bid, Mr. Caldera brought aboard Nationwide Financial as the plan's record keeper and National Benefit Services as the third-party administrator. Through negotiations with the firms, Mr. Caldera was able to submit a bid that established an association retirement plan that passed zero outside fees onto the participating employers. There is a 1.02% participant fee built into the plan to pay for service providers and a plan audit, Mr. Caldera noted.

As of late November, 28 employers had signed up for the plan and roughly $6 million in assets from existing plans was slated to move into the program in January, according to Mr. Caldera.

"We're slammed," Mr. Caldera said when asked about the interest from local employers. He expects the program to exceed 100 employers in 2020.

Caldera Wealth established a dedicated website, phone number and social media presence for the association retirement plan in order to spread the word.

The program offers six different plan options with varying metrics like how soon after starting a new job can employees join and whether the employer will offer a match. The program's investment options include 20 diversified passive and active investments, eight target-date funds and four risk-target funds from American Funds, Fidelity Investments, J.P. Morgan Asset Management, Vanguard Group and others.

Mr. Caldera said he's been receiving calls from other chambers about getting an association retirement plan off the ground and hopes the Las Vegas Metro can be a positive example.

"It's important for other chambers to see this as a value to their members, especially because the chamber represents small business and the 401(k) is no doubt a benefit," Mr. Caldera said.

While association retirement plans are a step in the right direction, there are likely many service providers and employers without retirement plans waiting to see how other legislative and regulatory efforts play out, sources said.

Provisions that make it easier for smaller employers to join open multiple employer plans — like excluding the common nexus requirement in the Labor Department rule — are included in the Setting Every Community Up for Retirement Enhancement Act, a sweeping retirement package known as the SECURE Act, which overwhelmingly passed the House in May and has been in limbo in the Senate ever since.

Service providers could be waiting to see if the SECURE Act passes before jumping into the multiple employer plan market, said Aron Szapiro, Morningstar Inc.'s director of policy research based in Washington.

"I don't think people have fully given up on SECURE where they'd say, 'This is the best we're going to do, let's just start partnering with these existing (association retirement plans),' " he said. "But there's nothing that says you can't do both. If you think they're good, viable models and want to get a head start, maybe you'd start working with a chamber of commerce that wants to do this."

David Levine, principal at the Groom Law Group in Washington, pointed to a request for information the Labor Department put out in July that sought comments on whether it should permit financial institutions to run an open MEP, among other questions.

"Given the DOL's RFI on open MEPs, I think some people are saying, 'Let's see how this landscape shakes out,'" Mr. Levine said.

Also over the summer, the IRS issued a proposal that addresses what many consider the biggest barrier to employers joining MEPs, the risk that one employer's non-compliance could disqualify all members.

The IRS proposed an exemption to its unified plan rule, more commonly referred to as the "one bad apple rule" that would allow other employers in the MEP to claim the exemption if certain conditions are met, such as the disqualifying employer being unable or unwilling to correct the problem or to provide information. The compliant employers would have to take actions to separate the assets and accounts of the disqualifying employer, under the proposed rule. Comments on the proposal were due Oct. 1 and a final rule has yet to be issued.

When it comes to state-backed automatic individual retirement account programs, known as Secure Choice programs, which have been adopted by states like Oregon, California and Illinois in recent years, Mr. Levine said association retirement plans likely won't intersect much. He views Secure Choice as the entry level option for employers, association retirement plans as the next step, and individual plans as the step after that. "Secure Choice may be a gateway entry for employers that don't have plans at all, but employers that want something more robust will go with association retirement plans," Mr. Levine said.