The Department of Labor (DOL) this week made it easier for small businesses to band together to create joint 401(k) retirement plans for workers. The new rule takes effect September 30, 2019. Now particularly smaller businesses will have more ways to join together to offer retirement accounts to their workers.
Such arrangements are called multiple-employer plans (“MEPs”). The current rules regarding MEPs limited the kinds of employers that could join MEPs. The DOL’s new rule, however, provides an opportunity for smaller businesses to get the benefit of a larger platform in the belief that a large group will receive better fees and reduced costs compared to what they would get individually.
One example of the broadening under the new rule is that companies in different industries could come together to form a 401(k) retirement plan if they are located in the same state and metropolitan area. Previously, entities had to have common interest, such as membership in a trade association.
In addition, the Treasury Department has proposed new rules that would eliminate the “one bad apple rule.” Previously, one non-compliant member of a MEP would endanger the compliance and tax-qualification of the entire plan. Now, only the bad actor would face penalties. This proposed rule is not yet final, but if enacted is another reason that small business owners should consider if a MEP is right for their employees.
This opening of the MEP requirements provides a great opportunity for businesses to attract and retain workers through offering retirement planning benefits that were previously not available to them. Employers interested in exploring a MEP under the new rules should work with counsel experienced in this area.