DOL rule enables small businesses to offer retirement plans through trade associations

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While the measure was praised by people in the retirement-savings sector, its release spurred a renewed push for passage of the SECURE Act.

Small employers who belong to the same trade association will be able to band together to offer retirement plans to their employees under a Labor Department rule released Monday.

Under the DOL rule, retirement programs could be offered by associations of employers in the same city, county, state or multistate metropolitan area, or by a particular industry nationwide.

For instance, a heating and air conditioning company and tool-and-dye manufacturer that both belong to a local Chamber of Commerce could plug their employees into a 401(k) plan sponsored by the chamber.

Currently, so-called multiple-employer plans require some form of commonality among the firms, such as being in a similar industry. The new DOL rule, effective Sept. 30, expands the parameters to include membership in the same association.

While the move was praised as a step in the right direction by people in the retirement-savings sector, they renewed their push for congressional approval of legislation that would allow for wider and more disparate employer networks to sponsor plans.

The pending bill, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, would “allow other types of financial institutions to run a 401(k) for their employer customer,” a senior DOL official told reporters on a conference call Monday providing context for the regulation on background.

The final DOL rule on association plans includes a request for information regarding an expansion of open multiple-employer plans under federal retirement law, the Employee Retirement Income Security Act of 1974.

“We’ll keep studying that issue,” the DOL official said. “We’re not sure we can go that far.”

Which is why the release of the DOL rule spurred more calls for congressional approval of the SECURE Act. It passed the House, 417-3, in June but has stalled in the Senate.

“DOL’s heart is in the right place, but they’re bound by the statute that’s in front of them,” said Andrew Remo, director of legislative affairs at the American Retirement Association. “SECURE is critical because it would remove all commonality requirements under ERISA. It would create the structure for a true open MEP.”

The new DOL regulation is seen as incremental progress.

“The Department of Labor’s association retirement plan rule is an important first step toward expanding access to multiple-employer plans,” American Council of Life Insurers spokesman Whit Cornman said in a statement. “The U.S. Senate can act now to pass the bipartisan SECURE Act that would broaden DOL’s rule to allow more small businesses to join a MEP.”

Edmund F. Murphy II, chief executive of Empower Retirement, sent a similar message to Capitol Hill.

“Empower supports any effort to increase access to the workplace retirement savings system,” Mr. Murphy said in a statement. “The final multiple-employer plan rule released by the Department of Labor today is limited in scope, recognizing that only Congress may change the underlying statutes. We continue to urge the Senate to pass the SECURE Act, which provides a much broader expansion of multiple-employer plans.”

Approximately 38 million Americans do not have access to a retirement plan at work, according to the DOL.

U.S. households that save at work are on track to replace 79% of their income in retirement, while those that don’t are projected to replace only 45% of their income, according to the Empower Institute. A survey last year by the organization found the majority of small businesses either offered or wanted to offer a retirement plan to their employees because “it’s the right thing to do.” But many small businesses hesitate to sponsor their own 401(k) programs because of the costs and administrative headaches, the survey found.