Association Retirement Savings Plans Given A Boost

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The U.S. Department of Labor has proposed a rule that would make it easier for small businesses to offer retirement savings plans to their workers through Association Retirement Plans, which would allow small businesses to band together to offer 401(k) plans to their employees.   

Enhancing workplace retirement savings is critical to the financial security of America's workers. Approximately 38 million private-sector employees in the United States do not have access to a retirement savings plan through their employers. Association Retirement Plans offer these workers – and their families – enhanced savings opportunities.  

“Many small businesses would like to offer retirement benefits to their employees, but are discouraged by the cost and complexity of running their own plans," said U.S. Secretary of Labor Alexander Acosta.

"Association Retirement Plans give these employers a simple and less burdensome way to offer valuable retirement benefits to their employees. The proposed rule helps working Americans – and their families – take care of themselves in their retirement years."

Under the proposed rule, Association Retirement Plans could be offered by associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide.

The Employers Association of New Jersey formed such a plan in 2015 under existing rules.

"We are creating great value for small businesses. For some of these employers, it's the first time that they can sponsor a plan. Their employees are appreciative. It's a tremendous win-win," says John Sarno, president of the Association.

Participating employers choose their own funds and design their own plan, which enjoy the same favorable tax treatment as any employer-sponsored plan.  Most of the administrative functions are handled by an administrator, relieving participating employers of administrative burdens.

According to the Labor Department, by expressly permitting these new plan arrangements, the proposal would enable small businesses to offer benefit packages comparable to those offered by large employers. The Department expects the plans to reduce administrative costs through economies of scale and to strengthen small businesses' hand when negotiating with financial institutions and other service providers.

According to Sarno, who met with Labor Department officials before the proposed rule was made public, small employers have access to best-in-class retirement savings funds while enjoying the lowest fees by leveraging the assets of the entire Plan.

“Employers gain access to premium funds that would otherwise be closed to them because they cannot meet high minimum investment thresholds. We are a model for how an association retirement plan is managed and the great value it can provide,” says Sarno.  

The new rules will permit the EANJ plan to expand beyond New Jersey into a multi-state metropolitan area, although Sarno is non-committal on whether the Association might take that step. 

As more employers enroll, fees decline in stages until a $20 million-dollar threshold is reached. At that stage, advisory fees drop to .40 basis points, says Sarno.    

For more information about EANJ’s Association Retirement Plan, click here.