August 20, 2019

New Rule Expands Retirement Plans Options for Small Businesses

Retirement planning is an essential financial discipline that Atlanta area individuals need to focus on throughout their career. While there is no shortage of retirement saving approaches, very few are as effective and utilized as employer-based retirement plans. In fact, the U.S. Department of Labor (DOL) found that ERISA covered plans offer higher contribution limits, lower investment management costs, enhanced regulations such as financial reporting and disclosure requirements and automatic enrollment features. Unfortunately, many small businesses struggle to offer a plan because of the associated costs. Unfortunately, this leaves employees without a vital retirement savings tool. To address the situation, the DOL recently issued a new final rule which makes it easier for small businesses to participate in multiple employer plans (MEPs). To help clients, prospects and others understand the changes, Wilson Lewis has provided a summary of key details below.

Summary of DOL Changes

The final rule permits a company to qualify as an employer for sponsoring an ERISA plan under one of the following formats.

• Association Retirement Plans (AEP) – Access to 401(k) or other retirement plans can be offered by organizations or association such as a local chamber of commerce or other association formed to manage a plan. Using this approach, groups of employers are required to have a “commonality of interest”, which means they must share the same trade or industry and have their main place of businesses in a single state or metropolitan area. It’s important to note the rule prohibits an employer group from being a financial institution (including plan recordkeepers or third-party administrators) of any kind.
• Professional Employment Organization (PEOs) – A logical fit for many small businesses, the new rule requires a PEO to perform significant employment functions for those who participate in a MEP. There is a single safe harbor for all PEOS, whether certified or not, with four criteria to meet the “significant” criteria. They must assume responsibility for paying wages to employees, assume responsibility for to pay and perform reporting for all employment taxes, play a clear role in employee recruiting (hiring and other HR functions) and maintain control over functions of any employee benefit the PEO is required to provide.
• Self Employed – Individuals that own a company without employees may qualify as an employer and employee to satisfy the requirements for associations. In order to qualify, they must have ownership in a business, earn wages in exchange for services or work at least 20 hours per week. Eligibility about whether a self-employed individual qualifies is made when they first become eligible and should be reassessed periodically after that.

Realizing the Benefits

This rule change opens the door to wider participation in MEPs. It’s expected to benefit small business owners by permitting for more intense competition for recruiting with larger companies, facilitate an increase in the number of accepted rollovers, offer enhanced portability of plan funds when an employee changes companies, and lower benefits administration costs resulting from economies of scale. The bottom line is it’s expected to expand retirement saving plan opportunities for small businesses

Effective Date

The final rule will go into effect on September 30, 2019.

Contact Us

The new rule will make it easier for many Atlanta area small businesses to participate in cost-effective MEPs. It will also open the door to offering additional employee benefits which they may currently be unable to afford. If you have questions about the new DOL rule or need assistance with your benefit plan, Wilson Lewis can help! For additional information please call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.