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.