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The Labor Department’s New Rule for Multiple-Employer Plans Is Limited

Ultimately, Congress still needs to act to make retirement coverage more widely available

Aron Szapiro


Updated: Aug. 1, 2019

The U.S. Department of Labor expanded access to multiple-employer plans (MEPs) last week—at least somewhat. 

Congress has been considering legislation that would enact MEPs, which would allow unrelated small employers to band together when they offer a retirement plan, for the past few years. 

These plans are not a panacea. But as we’ve pointed out, small employers are overwhelmed by the big responsibilities that come with offering retirement plans and MEPs could help.

The DOL rule, which takes effect on Sept. 30, isn’t comprehensive enough to create sweeping changes. But, it may induce a few more entities to offer MEPs, possibly increasing retirement coverage and perhaps improving the quality of the retirement plans for some small businesses. The most significant impact of this rule might be that it gives professional employer organizations (which offer companies a way to outsource HR services) a leg up in offering MEPs and might encourage more employers to join such organizations. 

In the meantime, many Congress watchers think lawmakers could soon pass a broader bill that would make multiple-employer plans more widely available—maybe even this fall.

The rule is significantly limited in scope compared to pending legislation

The reason the Labor Department’s rule is so limited is that to introduce multiple-employer plans on a broader scale, Congress must amend a few parts of the Employee Retirement Income Security Act. 

The Labor Department’s rule doesn’t empower insurance companies, broker/dealers, recordkeepers, or third-party administrators to offer multiple-employer plans. In contrast, most of the bills pending in Congress contemplate such entities becoming “pooled service providers” to offer and market MEPs. (Interestingly, the DOL also issued an RFI asking about the pros and cons of such an expansion, among other things. So if Congress does not act, perhaps the DOL will continue to expand MEPs on their own, within their existing authority.)

Instead, the department’s rule would expand the availability of multiple-employer plans in two useful, but incomplete, ways. First, the rule empowers professional employer organizations—which offer payroll, benefits, and HR services through a unique legal structure—to offer MEPs. Second, the rule provides additional guidance to employer groups and associations and makes it clear they can act as employers in running a MEP for their members.

Still, the Labor Department’s rule would bar any completely unrelated companies from forming multiple-employer plans. Without this change—which may become a reality if Congress acts—most small employers will have a hard time joining a MEP and, even if they can, will have limited options to do so. However, it would make it easier than it is today for companies to band together to offer retirement plans. For example, the rule clarifies that associations of employers in the same trade, industry, line of business, or profession can offer MEPs.

And, the rule empowers associations of unrelated businesses in the same city, metropolitan area, or state to offer a MEP. That means that local Chambers of Commerce (which are geographically-based associations) could more easily sponsor a MEP under the final rule.

Learn more about the small-business retirement-plan problem in the U.S. from our paper “Small Employers, Big Responsibilities.”

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