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DOL Issues Final Rule on Association Retirement Plans

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The Department of Labor on Monday issued final rules to help small businesses offer retirement plans to their workers via association retirement plans.

Preston Rutledge, assistant secretary for Labor’s Employee Benefits Security Administration, said on a Monday morning press call that in addition to the final rule, Labor has issued a request for information on other kinds of multiple employer plans.

“The purpose of this rule and the reason we wrote this rule is because there are a lot of smaller employers in particular that would like to set up a 401(k) plan for their workers, but they don’t for a number of reasons. One is expense; probably an even larger problem of concern to a smaller employer is the administrative [duties], the paperwork and the IRS filings that go along with offering a 401(k).”

Also, it’s not small businesses’ area of expertise, Rutledge added.

Due to the lack of small businesses offering 401(k) plans, “there are around 38 million employees of smaller and midsized employers that are not covered by a 401(k) at work,” Rutledge said.

Offering a plan at work is “the most powerful method we have used to help people save for retirement,” he added.

Labor issued the proposed rule last October. The effective date for the final rule issued Monday is Sept. 30.

The rule basically allows an association — for example, a local chamber of commerce — to set up a 401(k), Rutledge explained. “The local chamber of commerce, of course, has members throughout the community and throughout the county, or even the state, that belong to the chamber of commerce, and those small and mid-size businesses or even large businesses if they want to, could then plug into and join the 401(k) by the association,” he said. “You have the 401(k) administrator that has the expertise and can acquire the expertise to run the plan, the smaller employers simply plug in and their employees save at their workplace.”

The association will be running the 401(k) on behalf of the employers.

Another benefit, Rutledge said, “is a much larger pool of assets under management; a situation like this more assets means lower fees; lower fees means your account balances grow.”

The other kind of multiple employer plan in the final rule is the multiple employer plan run by a professional employee organization, or PEO, Rutledge said. “What PEOs do is their model is to take on as a contract, take on a lot of the human resources functions.”

What the rule announced Monday is doing, he continued, “is not allowing them for the first time, but is offering a safe harbor to give them some clarity if they have any doubts about their availability or their right under the law to run a plan. Simply, we’re creating a safe harbor that if a PEO … take over the wage payment function and the taxes, take over a role in terms of recruiting and hiring and responsibility for employee benefits, then we make it crystal clear that it’s fine for them to be running a 401(k).”

The rule is also opening up MEPs to all kinds of associations, Rutledge said. “They can be in any industry, but as long as they’re in a city, county or state or in the same metropolitan area.”

Rutledge also noted that Labor’s rule “meshes” with the Secure Act retirement bill that’s currently tied up in the Senate.

“The Secure Act in the area of multiple employer plans would go farther,” he said. “What the Secure Act does would be an entirely new kind of retirement plan that can go beyond what we’ve done. What we are in the position to do is to interpret existing law. What we’ve done is made these sorts of multiple employer plans available to an association.”

The Secure Act “would do that too,” he continued, “but it would go beyond that to other types of financial institutions to run a 401(k) for their employer customers. That’s a topic we’re still studying. We’re not sure we can go that far.”

Accompanying the rule is a request for information, or RFI, which asks for feedback on this question, Rutledge said.

“As of now, there’s really no conflict between the Secure Act and this rule.”