Data and Research July 29, 2019

Empower Views Open MEPs as a Solution for the Coverage Gap

Two-thirds of small businesses that currently do not offer a retirement plan say that they would consider doing so through an open MEP, Empower learned in a survey.

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In “Open MEPs: A Promising Way to Narrow the Coverage Gap,” Empower Institute reveals that 66% of small businesses that currently do not offer a retirement plan say they would do so through an open multiple employer plan (MEP).

Empower says that 33% of U.S. households are not eligible for an employer-sponsored retirement plan. “Workers who aren’t eligible  to participate in a workplace plan face difficulty matching the savings of workers who are enrolled in a sponsored plan,” Empower says in its report. “For example, U.S. households eligible for a plan are on track to replace 79% of their income in retirement while those that aren’t eligible are on track to replace just 45% of their income in retirement.”

What keeps small businesses from offering a retirement plan are the expenses and complexity, Empower says. “Open MEPs, which have widespread support across the retirement industry, provide an appealing way to bridge the coverage gap. In fact, open MEPs were at the top of the Defined Contribution Institutional Investment Association’s [DCIIA] wish list for improving retirement readiness.”

Currently, the Congress and the executive branch are considering proposals that would permit companies to participate in an open MEP without having a common nexus, i.e. being in the same industry, trade, line or business or region.

“Many industry watchdogs are optimistic that there will be some progress toward open MEPs in the near future, making them accessible to more employers, and, by extension, more employees,” Empower says.

Asked why they would consider offering an open MEP, 304 small businesses said it’s the right thing to do (63%), to retain employees (59%), to attract the most talented employees (59%), to offer a benefit that not many small businesses offer (48%) and to be able to hire in a tight job market (37%). Additionally, 36% said they would consider offering an open MEP because they personally need a retirement plan.

Asked what they viewed as the positive components of an open MEP, 55% said lower costs for their organization, 54% said lower costs for their workers, 49% said a variety of fund options, 49% said the help of financial professionals,, 47% said lower liability risk for their organization, 39% said administrative support for their benefits staff, 43% said fiduciary support, and 30% said protections under the Employee Retirement Income Security Act (ERISA) for all employees.

Compliance July 29, 2019

DOL Releases Final Rule on ‘Association Retirement Plans’

The rule will permit employers to connect with associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide, as well as a professional employer association (PEO), to provide retirement plans for their employees.

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The Department of Labor (DOL) has issued a final rule to help more employers offer retirement savings benefits through association retirement plans (ARPs).

The rule, which will go into effect on September 30, will permit employers to connect with associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide to provide retirement plans for their employees. The DOL says the rule will allow small and midsized plan sponsors to offer competitive benefits packages similar to those of larger organizations, a resource usually unattainable for smaller businesses due to high costs and overwhelming paperwork.

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“Less than a year ago, President Donald J. Trump signed an Executive Order focused on expanding quality, affordable workplace retirement plan options for America’s small businesses and their employees,” said Acting Secretary of Labor Patrick Pizzella. “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. Association Retirement Plans offer valuable retirement security to small businesses’ employees through their retirement years.”

With ARPs, businesses can join retirement plans without sorting through the filing and administration burdens, as the association handles this on behalf of small plans.

Under the rule, retirement plans may also be sponsored through professional employer organizations (PEOs), third-party human resources providers offering services to small and midsized plan sponsors. The DOL adds that the rule creates a safe harbor for PEOs, which offers clarity in administering retirement plans and in their role as PEOs. This includes “recruiting, hiring and firing workers of its client-employers that adopt the MEP [multiple employer plan],” and assuming “responsibility for and has substantial control over the functions and activities of any employee benefits which the service contract may require the PEO to provide,” according to the DOL. 

The proposed rule was first introduced last October and opened for a comment period, after President Trump had ordered the DOL to address the issue directly in an August 2018 executive order.  DOL officials state the final rule is mainly unchanged from the proposal, despite a more simplified PEO section and a switch from multiple safe harbor regulations to a single one. However, in response to an influx of commenters who requested additional information on open MEPs, the department has issued a 16-page request for information (RFI), set to publish on July 31, and open for comments until October 29. 

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