Strengthening retirement security for American workers

A proposed rule published Monday by the U.S. Department of Labor could help close our nation’s retirement savings gap. The proposal would make it easier and less expensive for more small and medium-sized businesses to offer workplace retirement plans, such as 401(k)s, that are widely available to employees of larger companies. 

Over the years, 401(k) plans have proven to be a successful keystone of our nation’s retirement system. 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.

{mosads}The cost and complexity of setting up these accounts, however, discourages many small businesses from offering this straightforward benefit. Many of America’s small business owners find it too onerous, too risky and too costly to offer retirement options for their employees.

A report from the Government Accountability Office (GAO) shows that employers cited regulatory complexity and fear of liability as major impediments to offering a retirement plan. A survey from the Pew Charitable Trusts found that 71 percent of small and medium-sized businesses that do not offer retirement plans cited high costs as a reason.

Although large employers frequently offer retirement plans to help employees save, only 14 percent of small employers currently offer a retirement plan, according to the GAO. One study shows that nearly 75 percent of workers without a workplace plan have no retirement savings — putting their financial security in retirement in serious jeopardy.

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

Operating within the statutory framework of the Employee Retirement Income Security Act of 1974, the proposal clarifies how groups of employers and professional employer organizations can sponsor Association Retirement Plans. 

Some multiple-employer retirement savings plans exist today, but they are only loosely tethered to existing law and regulation.

The Association Retirement Plan model in the Department of Labor’s proposal offers greater clarity for entities that currently offer multiple employer retirement savings plans and would give both existing and new plans more flexibility going forward.

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. More than 25 percent of America’s workers are employed by businesses that contract with a professional employer organization.

Day-to-day responsibility for operating Association Retirement Plans — such as asset management, benefit payments, governmental filings and other regulatory matters — would be in the hands of the associations. Small businesses would be able to focus on doing what they do best: running and building their business.  

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.

Alexander Acosta is the U.S. secretary of Labor.