Final rule: Employer groups may offer defined contribution retirement plans

Rules effective late September

Posted August 5, 2019

Under a new rule published in the July 31 Federal Register, the term “employer” is expanded to include bona fide groups or associations of employers and professional employer organizations (PEOs) and establishes more flexible criteria for sponsoring multiple employer plans (MEPs) than under earlier guidance.

A bona fide group or association of employers capable of establishing a MEP must include a group or association of employers that meets the following requirements:

  • The primary purpose of the group or association may be to offer and provide MEP coverage to its employer members and their employees;
  • The group or association also must have at least one substantial business purpose unrelated to offering and providing MEP coverage or other employee benefits to its employer members and their employees;
  • Each member of the group or association participating in the plan is a person acting directly as an employer of at least one employee who is a participant covered under the plan;
  • The group or association has a formal organizational structure with a governing body and has by-laws or other similar indications of formality;
  • The functions and activities of the group or association are controlled by its employer members, and the group’s or association’s employer members that participate in the plan control the plan; control must be present both in form and in substance;
  • The employer members have a commonality of interest;
  • The group or association does not make plan participation through the association available other than to employees and former employees of employer members, and their beneficiaries; and
  • The group or association is not a bank or trust company, insurance issuer, broker-dealer, or other similar financial services firm (including a pension recordkeeper or third-party administrator), or owned or controlled by such an entity or any subsidiary or affiliate of such an entity, other than to the extent such an entity, subsidiary or affiliate participates in the group or association in its capacity as an employer member of the group or association.

Currently, many small employers do not offer retirement benefits to their employees. In 2018, only about 53 percent of workers at private-sector employers with fewer than 100 employees had access to such plans, compared to 85 percent in larger companies. Cost and regulatory complexity generally discouraged small employers from offering workplace retirement plans for employees. This rule is designed to help change that.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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