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Workers at small firms may get more access to 401(k) plans under new federal rule

Key Points
  • Companies in different types of business will be able to team up for a retirement plan as long as they are located in the same geographical area.
  • If companies are located far apart, they could join forces as long as they are in the same industry.
  • The Secure Act, which is pending in the Senate, would expand these plans even further.

If you work at a small business and don't have access to a 401(k) savings plan, that could soon change.

The Labor Department on Monday released a final rule that's intended to make it easier for the nation's smaller firms to band together to offer 401(k) plans to their workers. The move comes about a year after President Donald Trump directed the agency to explore how to expand the availability of so-called multiple-employer plans.

Under the rule, which takes effect Sept. 30, businesses in different industries will be able to team up for a retirement plan as long as they are located in the same geographical area. If businesses are located far apart, they could join forces as long as they are in the same industry.

Adam Gault | Getty Images

The rule relies on the availability of what the agency calls "association retirement plans," which would be offered through employer groups — i.e., a local chamber of commerce — to its members. Additionally, a plan could be offered through specific firms that handle human resources tasks for their business clients.

Roughly 38 million employees of small and midsize companies do not have a workplace retirement plan, according to Labor Department officials. In 2018, 53% of workers at companies with fewer than 100 workers had access to one, compared with 85% of workers at larger companies.

Small-business owners have cited cost and administrative headaches as reasons they do not offer a 401(k) plan to their workers, department officials said Monday. The idea is that allowing them to go this route would reduce costs and alleviate the paperwork that goes with plan administration.

The new rule comes as a similar proposal to expand multiple employer plans awaits action in Congress.

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Federal retirement legislation known as the Secure Act, which cleared the House in May but has stalled in the Senate, includes a provision to allow companies to team up regardless of their membership in a professional organization or their industry. In other words, their only commonality would be their participation in a shared 401(k) for their workers.

A handful of states also have taken steps to address the lack of retirement plans among small businesses.

Some of those programs require employers that don't offer a 401(k) or other option to participate. Workers are automatically enrolled in a Roth Individual Retirement Account and contributions are withheld from their paychecks (although they can opt out).

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