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Lawmakers advanced and passed the SECURE Act with an eye to narrow the gap between small business workers who have access to a retirement plan and those who don't. According to Census Bureau data, there are almost 5.5 million businesses in the country with less than 100 employees. The Bureau of Labor Statistics says a little more than half of those workers—53 percent—have access to a retirement plan. Half of the private sector workforce—55 million Americans—don't have access to a workplace retirement plan.
The law's Open Multiple Employer Plan provisions allows unaffiliated businesses—not just small ones—to pool workers under one plan, thereby creating economies of scale, and reducing individual employer's fiduciary risk.
The plans won't be available until 2021, and take-up rates will largely depend on how regulators craft rules that impact adoption.
Industry proponents of Open MEPs have long cautioned the plans are not a panacea for closing the access gap to retirement plans in the private sector.
By some estimates, that may be a gross understatement. When the Joint Committee on Taxation scored the SECURE Act last year, it estimated 700,000 new qualified retirement plan accounts would be opened under the Open MEP policy over the next decade.
Some lawmakers used that figure to champion the bill. But if the JCT's estimate is accurate, that would mean a 1.3 percent reduction in the 55 million Americans that don't have a retirement plan.
|Big single-plan sponsors express interest in Open MEPs
That would be a modest victory. Other estimates are more promising. Recent analysis by the Employee Benefit Research Institute assumed an Open MEP adoption rate of 30 percent among employers that do not currently sponsor a retirement plan.
If accurate, that would translate to hundreds of thousands of employers participating in an Open MEP.
While it's hoped that Open MEPs will stimulate plan adoption among small employers, existing sponsors, and even large employers, may also see them as an attractive alternative.
A survey of plan sponsors by the Secure Retirement Institute—the retirement arm of LIMRA—shows 55 percent would consider transitioning to a MEP. Among sponsors with more than 1,000 employees, two-thirds expressed interest.
Lower plan costs was cited as the top reason for considering a MEP.
But the survey also revealed that employers are not sure what the plans are. More than six in 10 employers expressed no or little familiarity with the plans. Small employers were more likely to be in the dark.
"We're seeing interest from plan sponsors and advisors, but the jury is still out," said Mark Paracer, assistant research director of the Secure Retirement Institute.
"There's a lot we don't know right now, and a lot of work that still has to come from the Labor Department," he added.
For instance, MEPs are presumed to be cheaper for sponsors. But that won't be known until a market forms.
Another wildcard: Will advisors have the incentive to recommend a MEP to an existing plan sponsor?
"Recordkeepers are in the same situation—they don't know how this will play out. But they are investing in the educational process with advisors," said Paracer.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
