Understanding the DOL’s New Rule for Multiple Employer Plans

For decades, small businesses and their employees have been disadvantaged by the limited availability of high-quality, low-cost retirement plans. But this is all set to change by the end of third quarter this year, when a new rule from the U.S. Department of Labor (DOL) takes effect, seeking to expand the access of Multiple Employer Plans (MEPs). Learn more about the DOL MEP rule and some of the advantages businesses and their employees can realize from participating in a MEP.

The Department of Labor’s New MEP Rule

The DOL has codified an executive order that was proposed just a few months earlier and finalized on Monday, July 29th. Effective September 30, 2019, this new rule enables small businesses to join Association Retirement Plans (ARPs) offered by associations of employers in a city, county, or state or even in a particular industry. This rule also permits businesses to join plans sponsored through Professional Employer Organizations (PEOs). Through participating in a MEP, businesses can provide benefit packages to their employees without bearing the full administration costs or plan maintenance.

Right now, MEPs require participating employers or firms to have some level of commonality—such as being in the same industry. For firms that are fairly specialized or geographically isolated, this has always been a challenge. But the DOL’s new MEP rule significantly expands the parameters of these plans to include membership in an employer association.

Overview of MEP Regulations

Under this new regulation, an employer association must meet five requirements to offer a MEP to its employer-members. These include:

• One or more “substantial business purposes” other than offering retirement benefits, such that the association would still be viable if it did not offer benefits;
• Participating employers have some commonality of interest. This commonality of interest can be very broad and may include geographic region or industry;
• The activities of the group or association must be controlled by its employer-members, not by a third party or a single leader;
• The organization must have a formal organizational structure, including membership requirements and bylaws;
• Participation in the MEP must be limited to employees of the association’s working owners or employer members. As a practical matter, this means that contractors or certain part-time employees may not be eligible to participate in a plan, even if it’s offered to other employees of the same employer.

Benefits of MEPs

MEPs provide a wide range of benefits for both employer members and their employee participants.

Benefits to Employers

Participating in a MEP can offer businesses the following benefits:

• The ability, through economies of scale, to offer employees a retirement plan for lower costs than a stand-alone 401(k) or 403(b) plan, including low-cost fund offerings and a match (if desired);
• Reduced administrative workload and plan maintenance burdens along with reduced fiduciary liability and risks due to a single MEP administrator;
• The expanded employee recruitment opportunities that can come with offering a competitive retirement package.

Not only are MEPs easier to implement than other types of retirement plans, but they can also offer far more fiduciary protection for employers. And while it’s likely that the DOL’s new rule will go through tweaks as employer associations begin to test its limits, these essential benefits and protections seem unlikely to change.

Benefits to Employees

Employees who lack access to a workplace retirement plan can be seriously limited when it comes to maximizing their retirement savings. Although these employees are still able to contribute to a traditional or Roth IRA (so long as their adjusted gross income is within a certain range), the annual contribution limits for these individual retirement accounts are less than one-third of the annual 401(k) contribution limit.

In addition to providing previously ineligible employees with the opportunity to save for retirement, a MEP plan can also:

• Lower the cost of retirement savings by offering low-fee funds, which can boost return rates; and
• Provide employees with more investment options.

In Closing

In today’s highly competitive employment market, it’s invaluable for businesses to offer their employees the best possible benefits packages. And with the cost of other traditional fringe benefits like health and dental insurance continuing to rise each year, the DOL MEP rule couldn’t have come at a better time. The newfound availability of MEPs can help plan sponsors boost their benefits package without increasing financial outlay: a win-win for all parties involved.

Employers looking at ways to participate in a MEP, offer their own 401(k) or 403(b), or considering changes to their existing retirement savings plan should consult an independent expert in plan design, governance, investment options and recordkeeper services to learn more about available options. PlanPILOT, an independent registered investment advisor, specializes in retirement plan consulting. Not tied to any investment bank or fund family, PlanPILOT offers plan sponsors objective advice on cost-effective retirement plans. For more information, call us today at (312) 973-4911 or email info@planpilot.com.

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