What Is an Association Retirement Plan (ARP)?
An Association Retirement Plan (ARP) is a specialized form of a Multiple Employer Plan (MEP) that facilitates small businesses and self-employed individuals in providing retirement savings options, like a 401(k), to their employees. This arrangement allows businesses to unite based on geographic location or industry type to collectively offer a retirement plan.
ARPs streamline administrative processes and costs for small employers while leveraging economies of scale to enhance bargaining power. They also alleviate fiduciary responsibilities, particularly beneficial for resource-constrained companies.
Key Takeaways:
- An ARP enables employees of small businesses to collaborate for a collective retirement savings plan.
- ARPs permit employers within the same geographic region but different industries, or those within the same industry regardless of geographic location, to sponsor such a plan.
- Sponsors may include local entities such as chambers of commerce and professional employer organizations (PEOs).
How an Association Retirement Plan (ARP) Works
Established by the U.S. Department of Labor under a 2019 rule revision, ARPs aim to bolster retirement security for American workers by broadening the definition of “employer” within ERISA regulations. This initiative was triggered by a 2018 study from the U.S. Bureau of Labor Statistics revealing that around 38 million private-sector employees lacked access to employer-sponsored retirement plans.
ARPs facilitate disparate employers and self-employed individuals forming groups in specific regions, such as cities or counties, irrespective of industry affiliation. This is permissible if the association, like a chamber of commerce, has a connection to member employers besides the retirement plan. Moreover, ARPs may be managed by PEOs offering administrative services, excluding participation by self-employed working owners.
ARPs simplify the process for small businesses to provide retirement plans to their employees.
Sponsors of Association Retirement Plans
The sponsor or administrator of an ARP can be a bona fide association of employers, self-employed individuals, or a Professional Employer Organization (PEO). Notably, financial institutions and banks do not qualify as sponsors.
- Bona Fide Association: Entities like chambers of commerce or industry groups that meet DOL and IRS criteria can sponsor ARPs for their members based on a nexus beyond the retirement plan.
- Professional Employer Organization (PEO): These HR companies providing administrative and accounting support to client organizations are eligible to sponsor ARPs for their clients.
38 Million: The number of U.S. private-sector workers lacking employer-sponsored retirement plans.
Benefits of Association Retirement Plans
The recent DOL rule expands and enriches small business retirement plan access through ARPs, offering benefits such as:
- Widened ERISA definitions of “employer” to include businesses from the same area or industry.
- Lowered costs owing to participation in a consolidated MEP.
- Reduced regulatory burdens and fiduciary obligations managed by the plan sponsor.
- Enhanced negotiation leverage through economies of scale for better benefits and provider options.