Hey! MEPs Aren’t the Only Retirement Solution for Small Businesses

401k, MEP, retirement, solutions

Other choices exists.

President Trump’s August 2018 Executive Order urged the U.S. government to consider taking actions that would help make workplace retirement plans available to more Americans.

The directive specifically recommended expanding access to multiple employer plans (MEP), which could help smaller employers by:

The Department of Labor response was remarkably rapid. In October 2018, the agency proposed “…a regulation under title 29 of the Code of Federal Regulations to expand access to affordable quality retirement saving options by clarifying the circumstances under which an employer group or association or a professional employer organization (PEO) may sponsor a workplace retirement plan.”

While clarification is welcome, it does not resolve some of the issues that have made small business owners reluctant to adopt MEPs.

For example, businesses are still required to have a common business association or interest in order to form a MEP.

In addition, the proposed regulation failed to address:

It’s possible that legislation currently wending its way through Congress will address some of these issues and make MEPs more attractive for smaller employers.

Until that happens, businesses should explore the other options available to them.

Small businesses have retirement plan options

A significant proportion of smaller business owners are unfamiliar with the retirement plan options available to them. Some perceive the cost would be too high and the administrative requirements too difficult.

In a 2017 report, Pew explained that most of the smaller business owners participating in their survey “…did not have a full understanding of how 401k plans work, and few were familiar with plans or incentives designed for small businesses, such as the Simplified Employee Pension Plan (SEP), the Savings Incentive Match Plan for Employees (SIMPLE), or the small employer tax credit for retirement plan startup costs.”

These retirement plan options let business owners and employees who participate in the plan make pretax contributions, and any earnings grow tax-deferred until distributions are taken.

In addition, they are relatively easy to set up and maintain.

One option, the SIMPLE, is a low-cost payroll deduction plan that:

Companies that do not have a retirement plan and have 100 or fewer employees qualify to offer SIMPLE IRAs.

If employers prefer not to make matching contributions, workplace IRAs, which are also known as payroll deduction IRAs, could provide smaller businesses with an inexpensive retirement plan alternative.

Typically, IRA contribution limits are lower than those for SIMPLEs and SEPs.

Why should small business owners consider these plans?

There are many reasons for smaller businesses to offer retirement plans. Some companies want to help their employees. Others know that sponsoring a plan will make their firm more competitive and improve its ability to attract and retain talent.

Some companies have said a retirement plan helps communicate stability and commitment.

Here’s another reason: federal and state governments are concerned about the retirement crisis in the United States and have been taking steps to encourage higher levels of workplace retirement plan sponsorship and participation.

Currently, about one-third of private sector workers do not have access to workplace plans.

The effort to reduce that number has included the President’s directive on MEPs and several states implementing IRA payroll deduction plans that require employers who do not sponsor plans to automatically enroll employees and contribute a percentage of their wages or salaries to the programs.

There has been significant opposition to mandated programs, but some perceive them to be a solution with merit.

Small business owners who want the freedom to choose plans that suit their companies’ needs should educate themselves about the options available.

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