Labor Department Broadens Options for Small Businesses’ Retirement Plans

Published October 2, 2019

Employees of small- and medium-sized businesses will have access to more retirement savings options under a new U.S. Department of Labor rule.

The new regulation under the Employee Retirement Income Security Act (ERISA) allows many more employers to join Association Retirement Plans (ARPs) in order to offer 401(k)-type savings plans to their employees.

ARPs are a type of retirement plan that covers employees of more than one employer, called Multiple Employer Plans (MEPs). ARPs had been restricted to employers in the same industry. They may now cover a geographic area, such as a common state, city, county, or a metropolitan area, even crossing state lines. The final rule was published July 29.

Working owners without employees, including sole proprietors, can now participate, says Edward Hudgins, research director at The Heartland Institute, which publishes Budget & Tax News.

“This includes self-employed and small-business entrepreneurs who might prefer a 401(k) plan rather than an IRA they would have to manage themselves or pay higher fees to have someone else manage for them,” Hudgins said.

Levels Playing Field

There are many potential benefits to the new rule, a DOL fact sheet states.

“The rule allows small businesses to benefit from the economies of scale for administrative costs and investment choices currently enjoyed by large employers,” DOL states. “Participating in an ARP can lower costs and decrease the regulatory burden and fiduciary liability on small and mid-size businesses.”

About 85 percent of the workers at companies with more than 100 employees have access to retirement savings options. However, only 53 percent of employees at smaller businesses could access such benefits as of March 2018, states the National Compensation Survey conducted by the U.S. Bureau of Labor Statistics.

This has placed small businesses at a disadvantage in competing with large firms to attract employees, says David S. Addington, senior vice president and general counsel of the National Federation of Independent Business, in written comments submitted to DOL on the proposed rule.

“The new rule will help small and mid-sized businesses recruit and retain quality employees, instead of losing them to bigger companies that offer better retirement benefits,” Addington stated.

Benefits for Small Employers

The regulation also allows ARPs to be sponsored by Professional Employer Organizations (PEOs)—firms that provide outsourced services, such as payroll and employee benefits, to their clients, which include partnerships, sole proprietors, and nonprofits. PEOs are considered the co-employers of these firms’ workers for tax purposes. The rule allows PEOs to sponsor retirement plans for their business clients’ workers.

“In such an arrangement, small and independent businesses who are clients of the PEO benefit, both because they can offer their employees a 401(k)-type benefit to aid in attracting and retaining employees and because they can share with other employers the costs of administering the benefit, including auditing costs,” Addington stated. The rule change will allow small businesses to pool resources, Addington says.

“NFIB appreciates the Department’s efforts to expand the availability to small and independent businesses of multiemployer defined contribution pension plans sponsored by professional employer organizations,” Addington said.

Benefits for High-Skilled Workers

The new rule will help the economy accommodate changes to the workforce, says Hudgins.

“Coming decades will see major changes in labor markets as exponential technologies reduce the need for many traditional jobs, often with larger companies that can afford to offer retirement benefits,” Hudgins said. “But it also opens opportunities for innovative, smaller companies.

“These smaller companies will need to attract workers who will rightly expect compensation that matches their high levels of skills and knowledge,” Hudgins said. “ARPs will allow those companies, which will be so crucial for America’s economic future, to attract the best and the brightest.”

NFIB and other commenters asked the Labor Department to “give further consideration to facilitating ‘Open MEPs’—MEPs that cover employees of unrelated employers,” a DOL fact sheet on the rule states. This would remove restrictions limiting which types of businesses can join each ARP.

DOL has asked the public to provide additional information on the need for Open MEPs  by October 29, and could consider further regulatory changes.

Ashley Herzog ([email protected]) writes from Avon Lake, Ohio.

Internet Info

“Fact Sheet: Final Rule on Association Retirement Plans (ARPs),” Employee Benefit Security Administration, U.S. Department of Labor, July 29, 2019:–final-rule-on-association-retirement-plans-arps

U.S. Bureau of Labor Statistics, “National Compensation Survey: Employee Benefits in the United States, March 2018,” Bulletin 2789, September 2018: