The Department of Labor’s MEP rule—which makes it easier for small businesses to offer DC plans to their workers through Association Retirement Plans (ARP)—took effect on Monday.
Under the rule, ARPs could be offered by associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide (even if it crosses state lines).
In addition to association sponsors, the plans could also be sponsored through Professional Employer Organizations (PEO). A PEO is a human-resource company that contractually assumes certain employment responsibilities for its client employers.
By expressly permitting these new plan arrangements, the rule enables small businesses to offer benefit packages comparable to those offered by large employers.
The DOL 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.
In August 2018, President Donald Trump issued Executive Order 13847, “Strengthening Retirement Security in America.”
The Executive Order called for the Secretary of Labor to clarify and expand the circumstances under which U.S. employers, especially small- and mid-sized businesses, may sponsor or adopt an ARP or Multiple Employer Plan as a workplace retirement option for their employees.
Need and demand
According to a 2018 study from the Bureau of Labor Statistics, approximately 38 million private-sector employees in the United States do not have access to a retirement savings plan through their employers.
And which approximately 85% of workers at private-sector establishments with 100 or more workers were offered a retirement plan. In contrast, only 53% of workers at private-sector establishments with fewer than 100 workers had access to such plans.
A survey by the Pew Charitable Trusts found that only 53% of small-to-mid-sized businesses offer a retirement plan; 37% of those not offering a plan cited cost as a reason.
Political playbook
“The rule is interesting for a couple of reasons,” says Pete Swisher, Senior Vice President and National Sales Director with Pentegra Retirement Services. “One of them being the association health plan regulations that were linked to these rules were overturned in the D.C. Circuit.”
There was “speculation” about what the DOL was going to do as a result, Swisher added.
Would they rewrite the regs, file for an appeal or withdraw and hold off and maybe come back at it later? And there were 11 states where the attorneys general filed a lawsuit against association health plans, which they won.
“It seemed as though this was a venue that took the side of the plaintiffs and said these rules are unreasonable and needed to be overturned,” Swisher said. “But the Trump administration had announced its intention to help make large plan benefits more available to small companies. He did it with health care and then did it with retirement. He said he wanted to see progress within a year, and now we’re seeing those signs of progress. Rather than let the D.C. circuit lawsuit hold them up, they posted the final regs for association retirement plans.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
