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Department of Labor Issues Final Rule on Association Retirement Plans: What it Means for Small Business Owners

Retirement plans are one of the most valuable employee benefits offered by organizations today. According to the Society for Human Resource Management (SHRM), the vast majority of workers say having a retirement plan is critical to their overall job satisfaction. Perhaps that’s why this benefit is such a deal breaker for job hunters and one of the main reasons why so many workers stay with their current employers. 

It can be challenging for small businesses, however, to manage the administrative costs and compliance requirements associated with offering retirement savings plans. Only 53 percent of small-to-mid-sized businesses offer a retirement plan, with approximately 38 million private-sector employees without access to one through their employers.

The good news is that may be about to change. In July 2019, the Department of Labor (DOL) clarified the definition of “employer” within the Employee Retirement Income Security Act (ERISA) in sponsoring a multiple employer contribution pension plan. In establishing the ‘final rule', which goes into effect Sept. 30, 2019, the DOL has made it easier and more cost-effective for small businesses to offer retirement plans to employees through Association Retirement Plans (ARPs).

 Retirement savings.

What is an Association Retirement Plan?

Per the final rule, ARPs allow small and mid-size businesses to band together to offer joint 401(k) retirement plans. By using the purchasing power of the combined businesses, they can bargain for lower administrative and investment fees that would otherwise prevent them from offering retirement savings plans.

"Many small businesses would like to offer retirement benefits for their employees but are discouraged by the cost and complexity of running their own plans," Acting Secretary of Labor Patrick Pizzella, said in a statement. "Association Retirement Plans offer valuable retirement security to small businesses' employees through their retirement years."

According to the DOL’s final rule, ARPs can be offered by associations of employers in a city, county, state, multi-state metropolitan area, or nationwide industry. ARPs can also be sponsored through a Professional Employer Organization (PEO), which is a company that provides comprehensive HR services for businesses. While many PEOs have been sponsoring retirement plans for some time, this final rule provides the validation needed to continue doing so.

What it Means for Small Business Owners

Prior to this rule, such retirement plans were limited to employers with an affiliation or connection, such as a shared owner or being members of an industry trade group. However, these changes now mean that, for example, a landscaping company and a marketing agency located in the same area could create a joint retirement plan.

With a more cost-effective solution, small business owners can reap the benefits of offering retirement plans, including:

  • Attracting quality talent.
  • Improving employee satisfaction.
  • Reducing new employee training.
  • Retaining high performers.

Additionally, businesses can also receive tax credits from the IRS for starting a retirement plan. 

Retirement Plans Assistance

Offering retirement plans is important to attracting and retaining quality employees, but it’s a benefit with a lot of complexity and risk. Need assistance? A PEO like Group Management Services (GMS) can help cut costs, reduce stress, and save time when it comes to establishing retirement plans. We can help you set up fully customizable plans to easily establish eligibility requirements, vesting, profit-sharing contributions, and more.

In addition, GMS offers comprehensive services, including human resources, payroll, risk management, employee benefits, and more. Contact GMS today to request a consultation.

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