- Companies can band together in ways they couldn’t before to offer retirement benefits to their employees under a rule the U.S. Department of Labor (DOL) released last week.
- The rule takes effect September 30 and will permit companies in unrelated industries to form an association to administer a joint retirement plan as long as they’re in the same metropolitan area or state. Currently, only companies affiliated in some way, either by ownership or through membership in a trade association, can create a joint retirement program, known as a multiple-employer plan.
- “By expressly permitting these new plan arrangements, the rule enables small businesses to offer benefit packages comparable to those offered by large employers,” DOL says in a statement. “The Department expects the plans to reduce administrative costs through economies of scale and to strengthen small businesses' hand when negotiating with financial institutions and other service providers.”
DOL proposed the rule last fall in response to an executive order President Trump issued in August 2018 to find ways to improve retirement program options for employees of small and mid-sized companies, which lack the scale of large companies to provide benefits to their employees affordably.
An analysis DOL conducted while preparing its proposed rule last year and reported on by the Wall Street Journal found that small and mid-sized companies (those under $10 million in assets) paid a median 1.11% in fees for their retirement plans compared to 0.27% in fees paid by companies with assets over $1 billion.
In addition to improving their leverage when negotiating fees, companies can also spread the burden of administering the program among multiple companies or hand it over to a third-party administrator, what DOL calls a professional employer organization.
"Many small businesses . . . are discouraged by the cost and complexity of running their own plans,” Acting DOL Secretary Patrick Pizzella said in the statement.
The rule also clarifies that companies in similar industries but operating in different areas can band together for purposes of creating retirement programs.