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Finalized Association Retirement Plan Rule Introduces Possibilities

Recently, the U.S. Department of Labor released its final rule on association retirement plans, advertising in its press release that it will make it easier for small employers to offer retirement savings plans to their employees. DOL’s operating assumption is that the arrangements will be cheaper and less complex and put them in the position of much larger employers because of economies of scale. (Oh, by the way, this DOL assumption is very much caveated, as they express in preamble to the rule that they really don’t have a clue whether this will be the case.)

Under the rule, association retirement plans or “ARPs” can be offered by groups of employers in city, state, county, or multi-state metropolitan areas. The rule also makes it possible for association sponsors to do so through longstanding and accepted professional employer organizations, commonly known as PEOs. It remains to be seen whether the rule will achieve its objectives, but it does offer possibilities for organizations that want to get into the game of offering retirement plan benefits for their members but have been precluded from doing so under the old rules.

Which organizations might avail themselves of the rule to provide retirement benefits for their members under the rule? The organization or association must have one substantial business purpose other than the provision of retirement benefits and the participating members must have either a local geographic (not state) commonality as mentioned above or be in the same or be in the same trade or industry in which case association members can be nationwide. County or metropolitan area business organizations whose members are in diverse businesses or industries might be candidates such as chambers of commerce. State-wide, multi-state or nationwide business organizations might be interested if their members are in the same trade or industry.

And what are the downsides of association retirement plans?

  • They are hard to get started and significant effort is required to get them to a critical mass that will make them operationally and economically effective. In fact, you may find the arrangement is more expensive (initially and possibly on a long-term basis) than if adopting employers were to establish their own individual plans. Working with expert consultants and experienced legal counsel can help you determine the feasibility for your organization.

  • They impose fiduciary responsibilities on certain members who will be assuming responsibility for other member’s employees; and that discourages the assumption of this responsibility. Yes, I know that problem can be at least partially addressed by assigning or delegating fiduciary responsibility to professional plan administrators but in fact there is residual responsibility that never goes away.

  • Depending the geographic prong of rule for your association retirement plan rule may be a fool’s errand. The United States District Court of the District Columbia invalidated this part of the rule in the association health plan litigation, yet DOL maintains this test.

  • Maybe it’s better to wait. There are legislative proposals such as the SECURE Act (Setting Every Community Act for Retirement) that eliminate many of the shortcomings of traditional multiple employer arrangements under existing rules. Waiting may be the prudent course but passage of these proposals, viewed as a sure thing for several years now, has not happened yet.

There is an interesting aspect of the rule that I end with. DOL also clarified the treatment of PEO plans. For those of you not familiar with them, PEOs are organizations that enter into agreements with employers to perform all or some of the federal employ tax withholding, reporting, and payment functions relating to workers performing services for the employer. Many PEOs maintain plans for their client-employer employees. Until the rule there was doubt about whether PEOs could do this. The DOL clarification removes this doubt. It says as long as the PEO performs “substantial employment functions,” including having substantial control over employee benefits, among other things, they can do so. Associations that are interested in offering retirement benefits might take advantage of the clarification to avoid the pitfalls described above. Instead of sponsoring a plan, they could choose instead to offer PEO services that include a plan sponsored by the PEO.

There would be certain legal and administrative issues to work out in such arrangements and whether the additional PEO services (plus additional costs) would be attractive to members would have to be determined. Expert assistance would be invaluable as you work through these issues.

Chuck Humphrey is the principal of Law Offices of Charles G. Humphrey and he has been engaged in the practice of ERISA and employee benefits law for over 35 years. He is the author of the Fiduciary eSource available at He may be reached at or 716-465-7505.

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