A new Labor Department rule would
make it easier for small businesses to offer 401(k) plans, part of an effort to
close a retirement-plan coverage gap that affects millions of employees.
The proposed regulation would allow
companies to band together to offer 401(k) plans sponsored by entities
including business associations. Such arrangements, often called
multiple-employer plans, are allowed now for employers with an affiliation or
connection, such as companies with a common owner or members of the same
industry trade association.
The regulation—which the department
said could go into effect as soon as early 2019 after a period for comments and
possible revisions—would loosen those restrictions by allowing companies in
other types of business associations to join together to offer a retirement
plan. Examples might include a Chamber of Commerce, according to a senior Labor
Companies of any size can join these
plans, but small and midsize firms would likely have the most to gain in terms
of cost savings.
Such plans would be able use their
size to bargain for lower administrative and investment fees than small
businesses might otherwise be able to secure.
According to the Labor Department,
participants in 401(k) plans with assets that range from $1 million to $10
million pay a median 1.11% in fees, versus 0.27% for a plan with assets over $1
The entity or association sponsoring the
401(k) plan would serve as the fiduciary and have responsibility for setting up
and running the plan. But the employers would retain fiduciary responsibility
for selecting the plan to begin with, according to the senior official. Under
the DOL proposal, companies would be free to decide whether to offer a matching
contribution and, if so, at what level, the official said.
The Labor Department’s move is the
latest in a recent series of initiatives from lawmakers aimed at addressing a retirement
savings deficit that has left about half of American households at risk of
being unable to maintain their standard of living
in retirement, up from 45% in 2004, according to Boston College’s Center for
President Trump in August ordered the
Treasury and Labor departments to take this and other steps to better prepare
American workers for retirement. The order directed the Treasury to look into
protecting members of a multiple-employer plan from penalties if one company
violates the rules—for example, by failing to funnel employee contributions to
the plan on schedule.
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