The announcement of a new rule from the Department of Labor to make it easier for small businesses to offer retirement plans through Association Retirement Plans (ARP) makes research from Empower Retirement especially timely.
The Colorado-based mega-recordkeeper found that 66% of small business owners who do not offer a retirement plan today are likely to consider an open multiple employer plan (MEP).
Open MEPs are defined contribution plans sponsored by more than one unrelated employer.
“Small business owners’ interests in open MEPs are piqued over potentially lowering the costs to their organizations and lowering fees to employees in a workplace retirement plan offering,” according to the company.
“Business owners said the biggest advantage in offering their employees future savings options is ‘it’s the right thing to do.'”
Additionally, 59% of employers interested in open MEPs said other advantages to offering retirement plans would be employee retention and attracting talent.
However, among the top reasons why small businesses don’t offer a retirement plan to employees is because their company is too small, respondents said.
“Broadening terms to allow even more small businesses the opportunity to offer workplace retirement plans potentially puts more employees on a path to building their retirement savings,” Edmund Murphy III, President of Empower, said in a statement.
Empower’s survey also reveals that 50% of small businesses associate open MEPs as coming with help from financial professionals.
How to narrow the coverage gap
A December 2018 paper by the Empower Institute “Open MEPs: A promising way to narrow the coverage gap” lays out more details from the survey.
The impact of plan access on projected income replacement in later years is significant.
Participants who are eligible for a defined contribution plan and actively contribute have a median income replacement percentage of 79% compared to 45% for those without access.
At small businesses in the U.S. with fewer than 100 employees, less than half of workers have access to a defined contribution plan, such as a 401(k).
But according to the Empower survey, employees are interested in workplace retirement savings plans. Among the small businesses where owners are interested in open MEPs, 39% said employees had expressed interest in having a workplace retirement plan.
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.
