The Department of Labor has released proposed rules that would expand access to multiple employer retirement plans for small employers and self-employed workers, while also maintaining fiduciary oversight.
Modeled after the Association Health Plans (AHPs) concept, the proposed rules issued Oct. 22 would permit Association Retirement Plans (ARPs) and Professional Employer Organizations (PEOs) to sponsor defined contribution retirement plans for their members.
Under the proposal, an association – under certain conditions – would be permitted to serve as the employer for purposes of sponsoring the 401(k) for members of the association, such that the association will be the standing in the shoes of the employer. The proposal would also clarify that PEOs can sponsor a 401(k) for clients that a PEO works with on other human resource functions. The proposal would also permit certain working owners without employees to participate in a MEP sponsored by a group or association.
A vital component of the proposed rules is that the employer would maintain limited fiduciary duties. Under the proposal, the underlying sponsor of the ARP or PEO will be required to be a named fiduciary, taking on most of the fiduciary obligations, as well as the administrative responsibilities of running the plan.
But employers will still maintain fiduciary duties, such that they would be required to engage in a “prudent process” in selecting and monitoring the sponsor, and making contributions on a timely basis.
“We are pleased that the guidance came out so quickly and it is an important first step toward helping more small businesses provide important retirement benefit plans for their workers. We are also glad to see that the department agrees that employers should have some responsibility for selecting and monitoring the provider of the MEP. Without question, we will be responding to the proposal with our comments,” noted Brian Graff, NAPA Executive Director and CEO of the American Retirement Association.
As for ARPs, the association could be based on an industry relation, according to the DOL. For example, if employers are all within the same industry – such as the restaurant industry and all belong to a restaurant industry association – the association could sponsor an ARP.
In addition, if employers are not part of the same industry, but are located in the same city, county, state or multi-state metropolitan area and belong to the Chamber of Commerce, for example, then they could also belong to an ARP as part of an association with the Chamber. The DOL notes that geographic location in the past has not been considered a connection, but the department believes there is enough of a connection to allow for the creation of the ARP and that it is within the DOL’s authority to rule that way.
Finally, the proposal also will allow for self-employed individuals to belong to an association and join an ARP.
Comments on the proposed rules are due 60 days after publication in the Federal Register, scheduled to occur Tuesday, Oct. 23. DOL officials indicated they would like to finalize the rules by early next year.
RESA and Open MEPs
The proposal apparently does not incorporate allowing for so-called open MEPs by unrelated employers. The DOL notes that it has to interpret the law as currently written and that pending legislation on Capitol Hill would address this. DOL also notes that it is interested in receiving comments on the concept, as well as other potential versions of MEPs.
In fact, the House recently approved legislation that would ease the commonality rules for MEPs and eliminate the so-called “one bad apple” rule. Under this legislation, which is now pending in the Senate, employers could form a MEP under the existing commonality rules or they could join a covered MEP as part of a “pooled employer plan” (PEP) that is managed by a “pooled plan provider” (PPP).
This legislation was drawn from the Retirement Enhancement and Savings Act (RESA) introduced in the House by Reps. Mike Kelly (R-PA) and Ron Kind (D-WI), and in the Senate by Finance Committee Chairman Orrin Hatch (R-UT) and ranking committee member Ron Wyden (D-OR).
One Bad Apple
While not included in the DOL’s proposal, the Treasury Department’s unified regulatory agenda has a new listing showing that the IRS intends to issue a notice of proposed rulemaking by April 2019 to address the so-called “one bad apple” rule. Under this rule, participating employers in a MEP are at risk for the non-compliant acts and omissions of other employers in the MEP and subsequent potential disqualification of the entire plan by the IRS.
Treasury’s updated agenda states: “The proposed regulations would provide limited relief to a defined contribution MEP in the event of a failure by one employer maintaining the plan to satisfy an applicable qualification requirement or to provide information needed to ensure compliance with a qualification requirement.”
Two Months After Executive Order
The DOL’s proposed rules come less than two months after President Trump signed an executive order directing the DOL and Treasury to consider changes to make it easier for businesses to join together to offer MEPs.
The President, in his Aug. 31 announcement, noted that ARPs reduce the cost of offering retirement plans for businesses that join together by expanding the number of workers who participate. “President Donald J. Trump is moving to expand quality, affordable workplace retirement plan options for America’s small businesses and their employees. Many small businesses would like to offer retirement benefits to their employees, but are discouraged by the cost and complexity of running their own plans,” Labor Secretary Alexander Acosta said in an Oct. 22 news release. “Association Retirement Plans give these employers a simple and less burdensome way to offer valuable retirement benefits to their employees. The proposed rule helps working Americans – and their families – take care of themselves in their retirement years.”