Association Retirement Plans Expected to Expand Quickly

At the end of July, the U.S. Department of Labor (DOL) published a final rule aimed at making it easier for small businesses to offer retirement savings plans.

Taking formal effect September 30, 2019, the rule establishes pathways for small employers to offer workers access to “association retirement plans,” or “ARPs.”

In some respects, ARPs are similar to open multiple employer plans, or “open MEPs,” which are a key component of the popular SECURE Act. That bill remains stalled in the U.S. Senate, leading some retirement industry advocates to focus on the expansion of ARPs as an important next step in closing the retirement plan coverage gap.

According to DOL leadership, many small businesses would like to offer retirement benefits to their employees, but they are discouraged by the cost and complexity of running their own plans. Under the rule, ARPs could be offered by associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide. In addition to association sponsors, the plans could also be sponsored through professional employer organizations (PEO). The DOL’s working definition of a PEO is “a human-resource company that contractually assumes certain employment responsibilities for its client employers.”

By expressly permitting these new plan arrangements, DOL says, the rule enables small businesses to offer benefit packages comparable to those offered by large employers. The DOL leadership expects the plans to reduce administrative costs through economies of scale and to strengthen small businesses’ hand when negotiating with financial institutions and other service providers.

For the most part, retirement industry insiders believe the ARP expansion is a step in the right direction of providing yet another cost-effective option for small businesses to offer retirement plans. This is the first time that employers will have the opportunity to join a collective plan based on geographic location, says Erin Turley, a partner with McDermott Will & Emery in Dallas. For instance, a local chamber of commerce might sponsor an association retirement plan, agrees Drew Carrington, head of institutional defined contribution at Franklin Templeton in San Mateo, California.

In fact, right after the final rule was issued by the DOL, the Las Vegas Metro Chamber of Commerce announced it would create an association retirement plan. The chamber said it would do so because the pooling of assets will give small business members a better deal from investment advisers as well as lower fees. Since that time, other chambers of commerce and business organizations have indicated they will soon be launching ARPs.