DOL: Small Businesses Can Form Groups to Offer Employees Retirement Plans

Editor’s Note: Labor Secretary Alexander Acosta wrote this commentary that appeared in The Hill.

A proposed rule published in October by the U.S. Department of Labor could help close our nation’s retirement savings gap by making it easier and less expensive for small and medium-sized businesses to offer workplace retirement plans widely available to employees of larger companies.

The 401(k) system is rooted in conservative economic principles: ownership, personal responsibility, simplicity, convenience and optimism in American prosperity. Virtually all workers at large employers have access to a low-cost, private retirement account.

The cost and complexity of setting up these accounts, however, discourages many small businesses. Many of America’s small business owners find it onerous, risky and too costly to offer retirement options to their employees.

Only 14 percent of small employers currently offer a retirement plan, according to the Government Accountability Office. One study shows that nearly 75 percent of workers without a workplace plan have no retirement savings, which jeopardizes their financial security in retirement.

The U.S. Department of Labor’s proposal has the potential to help millions of Americans use a new simple and affordable option for retirement savings.

The proposal clarifies how groups of employers and professional employer organizations can sponsor association retirement plans.

Through this proposal, small and mid-sized employers, including sole proprietors, could band together to offer retirement products, services and investments that are currently offered at a lower price to employees of large businesses.

By joining together to provide retirement plans through an association, small businesses would benefit from the economies of scale that large employers have in providing retirement benefits to employees—lowering costs.

Trade groups or associations of businesses—such as a chamber of commerce—could sponsor an Association Retirement Plan, offering employees of those businesses access to retirement benefits. An association could be based on geography or industry.

Under this proposal, professional employer organizations also could sponsor an Association Retirement Plan, helping their clients provide a savings option for employees.

By leveraging economies of scale, the Association Retirement Plans proposal may reduce costs and complexity that discourage small businesses from offering retirement plans.

With 47.5 percent of American workers employed by small businesses, we must work to increase access to these proven mechanisms for Americans’ retirement savings.

Source: The Hill