Taking the employer out of the "employer-sponsored retirement plan"

Shifting retirement plan operations to a third-party, known as “decoupling” could offer employees greater options, while reducing the cost, risk and administrative burdens for employees, the American Academy of Actuaries said in a recent issue brief.

About one-third of all private industry workers in the U.S. do not have access to an employer-sponsored retirement plan, the academy noted. Those workers often are employed at small business that lack the resources needed to operate plans.

That is where decoupling comes in, the academy said.

“Decoupling plans from employers has the potential to increase coverage, better meet individuals’ needs, provide for greater efficiency in the retirement benefit accumulation process, and offer distribution options or other features that employers on their own cannot offer or may choose not to offer,” the issue brief said.

Some companies may prefer to concentrate on their businesses rather than administering benefit programs, the actuaries said.

“In this environment, shifting retirement plan responsibility and related liability to a third party can be a sound business and risk management approach,” according to the issue brief.

In a decoupled program, employers would not need to take on the full fiduciary responsibilities for the plan. Some of the administrative responsibilities could be shifted to third-party companies. Those companies could be subject to government oversight and ERISA rules, the actuaries wrote.

Using that model, an employer’s responsibility could be limited to choosing the third-party company and ensuring that employer and employee contributions are sent to the contractor.

However, the academy warned that if an employer has a limited role with the program, decoupled plans could lead to confusion among employees, which could result in limited participation.

Currently, U.S. defined contribution plans show no signs of decoupling. While some companies farm out specific duties to third-party providers, the companies still retains the ultimate responsibility as fiduciary.

However, there are defined benefit plans that are decoupled, according to the brief. For instance, the U.S. multiemployer plan system, which covers union members who work for different companies is decoupled. And some states, counties and municipalities have decoupled defined benefit plans.

Decoupled plans could offer several benefits to companies, including lower administration costs, and a decreased fiduciary liability. Those benefits could allow smaller employers to offer retirement benefits.

The actuaries said that decoupled retirement plans have been used in other nations and they predicted that the trend toward decoupling is likely to continue.