Advisors are experts in meeting the needs of companies and employers in providing retirement options to their employees. With the average retirement savings among Americans still falling far below what will be needed, Advisors may want to consider how to market their services to those who need them, including these associations.
New options for association-based retirement plans can be beneficial to many Americans, but only if those plans come to fruition. A new report from the Center for Retirement Research shows that many small firms don’t even know about new association-based options. When more associations offer retirement plans, more Americans can have secure retirement futures. The gap between new, more lenient regulations on who can qualify as an employer under ERISA and providing those plans might be filled by financial advisors if advisors can understand how to market their services to those groups. To understand how to cross this gap, advisors may want to understand the history of the rule change, how associations make decisions, and how to market to them.
Administrative cost control is often not included in the news of recent efforts at retirement law reform. Yet, it may be a key barrier keeping many Americans from gaining access to tax advantaged investments such as 401(k) retirement plans. Almost three quarters of smaller businesses without retirement benefits named high costs as among the reasons why they don’t offer plans to their workers, according to a survey by the Pew Charitable Trusts.[1] In fact, that survey was used as support for a 2018 executive order from then President Trump requiring the Secretary of Labor to examine regulatory changes that might allow for greater use of multiple employer plans (MEPs) so as to reduce costs.[2]
That little discussed executive order prompted action by the Department of Labor to reexamine the definition of “employer” under ERISA. Approximately one year later the DOL then took up this issue by issuing a rule allowing for association retirement plans. The DOL’s order expanded beyond MEPs and added Association Retirement Plans which they referred to as ARPs both of which hinged on the change in definition of employer under ERISA.[3]
An Association Retirement Plan (ARP) allows employers to group together by geographic area or industry to form a retirement savings plan for their employees. An ARP is not the same as an alternative retirement plan, a term used by some state employers offering both pensions and 401(k)-like plans.[4] DOL’s ARPs expanded the number of employers who could pool resources to reduce administrative costs involved in managing a retirement plan. “As an ‘employer,’ a group or association, as well as a PEO, can sponsor a defined contribution retirement plan for its members…”[5]
This DOL rule on ARPs and MEPs was strengthened by the 2019 SECURE Act. “The Secure Act removed the commonality of interest requirement that previously limited multiple employer plans (MEPs) to business owners who shared the same geographic location or industry—creating a new type of MEP… [E]mployers will be able to offer MEPs, association retirement plans (ARPs) and pooled employer plans (PEPs).”[6]
Advisors may want to consider how trade associations make decisions when planning a marketing strategy aimed at those groups. In their new report, the Center for Retirement Research noted that many small firms do not even know that the options for MEPs exists for them. In that report, the CRR stated that many small firms have concerns about costs as well as the ability to exit a MEP if it turns out to be a poor choice.
Overall, trade associations may have a stronger incentive towards strategic planning than other prospective retirement plan clients. For example, associations must focus on attracting and retaining members.[7] The benefits they offer are a part of that marketing plan, but so too is budgeting and dues management.[8] This push and pull may lead associations to consider different questions when looking to hire a vender. Those questions, though similar to those posed by corporate retirement plan sponsors, may put more emphasis on the abilities of the trade association to manage the administrative needs involved in retirement plans. This may be especially true for those with no experience in the recordkeeping involved with them. Advisors may want to consider how to inform associations about their experience working with any group new to offering retirement plans and finding recordkeeping vendors, including those offering standard 401(k) plans. Advisors may also want to emphasize their previous experience working with multiple levels of service providers and fiduciaries or add a specialist in MEPs and ARPs to your team.
As always, advisors should discuss potential anti-trust risks with compliance or legal counsel. The potential for antitrust investigation into the trade association is serious. “Mere synchronized or “parallel” conduct by individual members—perhaps each refusing to deal with a particular competitor or vertical partner—could still invite costly antitrust investigations and litigations by competitors or regulators even in the absence of an explicit anticompetitive agreement reached during an official association meeting.”[9]
Advisors are experts in meeting the needs of companies and employers in providing retirement options to their employees. With the average retirement savings among Americans still falling far below what will be needed, Advisors may want to consider how to market their services to those who need them, including these associations.
[1] https://www.cnbc.com/2018/08/31/trump-seeks-changes-to-retirement-accounts-in-executive-order.html
[2] https://www.govinfo.gov/content/pkg/DCPD-201800563/pdf/DCPD-201800563.pdf
[4] https://www.passhe.edu/hr/benefits/retirement/arp.html
[6] https://www.thinkadvisor.com/2020/02/19/secure-acts-new-retirement-plans-meps-arps-peps
[7] https://www.realnewspr.com/blog/marketing-strategies-for-trade-associations
[8] https://memberclicks.com/blog/trade-association-management-guide
[9] https://www.winston.com/en/blogs-and-podcasts/competition-corner/a-reminder-to-trade-associations-to-tread-carefully see also https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/dealings-competitors/spotlight-trade-associations
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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