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How the New 401(k) Rule Tries—And Fails—to Improve Access to Retirement Plans

Caleb Newquist Editor-at-Large, Gusto 
DOL's New Association Retirement Plans Rule - Gusto

Most everyone has heard about Americans’ struggle to save for retirement, but the underlying cause of those struggles is complex

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Increased costs of living are a big problem, but another significant issue is that a number of Americans don’t have access to a retirement plan. A 2018 report from the Stanford Center on Longevity found that “Roughly half of all households are offered work-based retirement plans at their current jobs.” 

You don’t have to be an Olympic mathlete to see the gap:

If roughly half of all households are offered retirement plans at work, half are not.


But this oversimplifies things. 

This post will go into detail about the gap in retirement plan access, and recent developments at the state and federal level, including new guidance on association retirement plans from the Department of Labor.  

First, let’s take a closer look at how significant the retirement access gap is. 

The retirement plan access gap

According to research from Guideline, of the 5.8 million small businesses with less than 100 employees, 90% of them do not offer a retirement plan. That same research found that those 5.8 million businesses employ 42 million people; 75% of whom do not have access to a retirement plan. 

If everyone agrees that Social Security is not meant to be a person’s sole source of income during retirement, then we can also agree that 30+ million people simply not having access to a retirement plan is a real problem. 

The silver lining in Guideline’s research, however, is that 70% of the workers who do have access to a retirement plan participate. In other words, giving people the opportunity to save for retirement is a critical part of getting them to actually save for retirement. 

So how can accessibility be improved? Changes at the federal level have the greatest potential to improve employee access to retirement plans.  

DOL’s new 401(k) rule

A recent rule change by the Department of Labor (DOL) will attempt to make it easier for small businesses to group together to offer a 401(k) or similar defined contribution plan

These association retirement plans (ARPs), the Wall Street Journal reports, would allow 

“… companies in different industries—for example, landscaping companies and real-estate firms—[to] create a joint plan as long as they are located in the same state or metropolitan area.” 

The new rule also clarified that professional employer organizations (PEOs) will also be able to sponsor retirement plans. 

Supporters of ARPs say that they give small businesses access to options similar to those offered by large employers. Plus, by banding together with similar companies, it gives small businesses greater bargaining power, allowing them to negotiate for lower administrative and investment costs than they might pay if offering a retirement plan on their own.

How could the new 401(k) rule work in the real world?

Great question. Here’s an oversimplified example: 

The Feline Fine Township Chamber of Commerce sets up a multi-employer retirement for all of its business members. Meow’s Tavern, the Cathlete’s Foot, and The Just Kitten Comedy Club all want to offer a retirement plan to their employees, but don’t have the resources to offer one themselves.

They can simply join the Feline Fine Chamber, gaining access to the ARP, and BOOM, their employees can start saving for retirement. 

Now, it’s important to understand—only Feline Fine Chamber members would be eligible to join this ARP. Dogtown businesses, for example, would not be able to join the Feline Fine Chamber ARP since they’re in Dogtown.   

Okay, okay, but will the new rule work?

Hard to say. Mark Iwry, a Treasury official in the Obama administration told the New York Times last year that many of the savings that ARPs may bring have already been achieved through new, low-cost offerings by 401(k) plan providers. 

So yes, while the DOL has finalized the rule and it will go into effect on September 30, 2019, it’s possible that any cost savings are already baked into the system. 

Another drawback of ARPs is the lack of control individual employers will have with certain aspects of their shared retirement plan. Investment options, for example, may be limited to mutual funds from a particular asset manager, and many people may want a greater selection of options. Likewise, if an employer wanted to integrate its 401(k) offering with its payroll platform, it’s possible that an ARP’s choice wouldn’t allow for that. 

Business owners who wish to retain control over those kinds of aspects of their plans probably aren’t the best candidates for joining an ARP.

Furthermore, since ARPs, unlike state programs such as OregonSaves and CalSavers, cannot mandate participation by employers, there’s no guarantee that employers will join one. ARPs will have to work at increasing their awareness among potential members to really improve the participation of employers and their employees. 

States are stepping in

In addition to the new DOL rules, some states have taken matters into their own hands, passing legislation that requires businesses to either: 

  • Offer a retirement plan like a 401(k) or 
  • Register with a state program like OregonSaves or CalSavers that gives their employees access to an individual retirement account (IRA).

State intervention is definitely a step in the right direction to improve retirement plan accessibility. The limits of these plans, obviously, is that they only impact the employees of the employers who reside in those states. And because it’s highly unlikely that every state in the U.S. will pass its own version of OregonSaves or CalSavers, that means millions of workers will still not have access to retirement plans. 

What should you do now?

Like most things, it depends. 

For businesses in Oregon, California, and any other state with retirement plan legislation: 

  • Educate yourself on the legislation’s requirements to decide whether the state-run plan or a 401(k) provider is the best fit for your business. 
  • Find out if you need to take action now or later. Penalties for non-compliance are stiff, so don’t delay. 

If your state doesn’t have a retirement plan, but you’d like to offer one to employees: 

  • Consider the pros and cons of either engaging a 401(k) provider directly or joining an ARP under the new rules that go into effect in September 2019.
  • Do something. Or do nothing. But hopefully you’ll do something because offering a retirement plan is a benefit that many employees are looking for when considering an employer. So if you don’t offer a retirement plan, not only are you contributing to America’s GREAT SAVINGS CRISIS, you might have trouble hiring the employees you need.

What’s next?

State-sponsored retirement plans and the newly expanded rules for multi-employer plans are positive developments in encouraging both employers and employees to think seriously about offering retirement plans

They both have their drawbacks, however. State programs are limited in their reach, and the new DOL rule does nothing to ensure that businesses will join ARPs. 

There’s still hope that the conditions will continue to improve, however. More states are considering state-sponsored retirement plans, and legislation in Congress, the SECURE Act, could improve accessibility to ARPs—and by extension retirement plans—even further.

And that’s the whole point; giving workers the opportunity to save for their futures is a big piece of this puzzle.

Caleb Newquist
Caleb Newquist Caleb is Editor-at-Large at Gusto. In 2009, he became the founding editor of Going Concern, the one-of-a-kind voice on the accounting profession, serving in the role for 9 years. Prior to Going Concern, Caleb worked as a CPA for nearly 6 years in New York and Denver. He lives in Denver with his wife, daughter, and two cats.

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