What is Association Retirement Plan? How Does Association Retirement Plan Works?

What is Association Retirement Plan? 

An association retirement plan (ARP) is a specific form of a "closed" multiple employer plan (MEP) designed to simplify the process of providing retirement savings options, like a 401(k), to employees of small businesses and self-employed individuals. ARPs enable these entities to collaborate based on shared geographic location or industry type.

By forming ARPs, businesses can enjoy advantages like cost reduction and simplification of administrative tasks, all while benefiting from economies of scale. Additionally, ARPs empower smaller employers to negotiate more effectively. Moreover, they help alleviate fiduciary responsibilities, a potential hurdle for resource-constrained small businesses.

How Does Association Retirement Plan Works?

Established by the U.S. Department of Labor (DOL) under a rule effective on September 30, 2019, Association Retirement Plans (ARPs) were introduced to enhance retirement security for American workers. This initiative involves broadening the interpretation of "employer" within the framework of ERISA guidelines. The creation of ARPs was prompted in part by a 2018 U.S. Bureau of Labor Statistics (BLS) report that identified around 38 million private-sector employees lacking access to employer-based retirement savings programs.ARPs permit unrelated businesses and self-employed individuals to form associations with fellow employers within a specific location (city, county, state, or metropolitan area). This collaboration is irrespective of industry, as long as the association, such as a chamber of commerce, shares a connection with member employers and their retirement savings plan. Professional employer organizations (PEOs), which manage HR functions for member companies, can also sponsor ARPs. However, self-employed individuals cannot participate in a PEO-sponsored ARP.

What Advantages Does the DOL Rule Offer Through ARPs?

The recently implemented DOL rule extends and enriches small business participation in retirement savings plans via ARPs, offering the following advantages:

• Wider ERISA definition of "employer," encompasses employers in the same geographical region, irrespective of industry.
• Broader ERISA definition of "employer," covers employers in the same industry, irrespective of geography.
• Reduced costs for employers by virtue of joining a unified MEP.
• Diminished regulatory complexities and fiduciary obligations as the plan sponsor takes charge of those duties.
• Facilitated negotiations leveraging economies of scale for improved benefits and access to a wider range of providers.

Who Are the Sponsors of Association Retirement Plans (ARPs)?

An Association Retirement Plan (ARP) can be sponsored by either a legitimate association of employers or self-employed individuals or by a human resources firm known as a Professional Employer Organization (PEO). However, financial institutions and service providers like banks are not eligible to be sponsors.

A "Bona Fide Association" refers to organizations like local chambers of commerce, trade groups, or industry associations that fulfill criteria outlined by the Department of Labor (DOL) and the Internal Revenue Service (IRS), including having a connection beyond the retirement savings plan. Such associations can serve as sponsors for ARPs.

A "Professional Employer Organization (PEO)" is a human resources entity that provides extensive administrative and accounting services to client employers. A PEO that adheres to DOL and IRS criteria can also act as a sponsor for an ARP on behalf of their clients.

What Benefits and Considerations Are Associated with ARP Sponsorship?

Benefits and Considerations Associated with ARP Sponsorship:

Cost Efficiency: Association Retirement Plan (ARP) sponsorship can lead to cost savings for both the sponsoring organization and its member employers. By pooling resources and sharing administrative responsibilities, the overall operational costs can be significantly reduced.

Simplified Administration: Sponsors of ARPs take on administrative tasks such as plan management, record-keeping, and compliance oversight. This simplification eases the burden on member employers, allowing them to focus on their core business operations.

Economies of Scale: Through ARP sponsorship, participating employers can leverage economies of scale. By joining forces, they gain access to better investment options, improved plan features, and potential discounts on services that may not have been attainable individually.

Enhanced Negotiating Power: Sponsors of ARPs can negotiate with service providers and financial institutions on behalf of the member employers. This collective bargaining power can result in more favorable terms, lower fees, and better investment choices.

Fiduciary Responsibility: While sponsors assume fiduciary duties, member employers still maintain some level of fiduciary responsibility. It's important to understand the extent of these responsibilities and ensure proper governance and compliance.

Access to Expertise: ARP sponsors often possess expertise in retirement plan administration and compliance. This can benefit member employers by providing access to experienced professionals who can guide them through complex regulatory requirements.

Potential Liability: Sponsors carry fiduciary liability for the ARP's operation and performance. As such, they must ensure diligent plan management and adherence to regulatory standards to mitigate potential legal risks.

Choice of Sponsor: Member employers should carefully select an ARP sponsor that aligns with their needs and values. Factors to consider include the sponsor's reputation, experience, fees, investment options, and the quality of services provided.

Administrative Support: ARP sponsors can offer administrative support in areas like employee education, enrollment assistance, and investment guidance. This added support can contribute to improved employee participation and engagement.

Customization: Depending on the ARP sponsor, member employers may have the flexibility to customize plan features to suit their workforce's unique needs and preferences.

Regulatory Compliance: ARP sponsors must ensure compliance with applicable regulations, which can involve regular reporting, disclosure, and adherence to ERISA guidelines. Member employers should be aware of these compliance requirements.

Long-Term Commitment: ARP sponsorship involves a long-term commitment to managing and maintaining the retirement plan. Member employers should assess whether the sponsor is dedicated to providing ongoing support.

Member Participation: ARP sponsors encourage member employers to actively engage in the plan to maximize its benefits. Employers and employees should take advantage of educational resources and investment opportunities offered by the sponsor.

Plan Flexibility: The level of plan flexibility and the range of investment options may vary depending on the ARP sponsor. Member employers should evaluate whether the available options align with their retirement goals.

In conclusion, ARP sponsorship offers potential advantages such as cost savings, administrative relief, and improved benefits. However, it also comes with responsibilities and considerations that require careful evaluation before choosing the right sponsor for an Association Retirement Plan.

What Does ARP Stand for?

ARP stands for Association Retirement Plan which is a type of "closed" multiple employer plan (MEP) designed to simplify retirement savings provision for small businesses and self-employed individuals. By forming groups based on geographic location or industry, these entities can collectively offer 401(k) plans and similar options to their employees.

ARP streamlines administrative complexities, enabling smaller enterprises to provide more robust retirement benefits. This collaboration enhances financial security for employees and addresses challenges in the retirement landscape. Through collective efforts, ARP empowers businesses to facilitate effective retirement planning, demonstrating the significance of tailored solutions and cooperation in bolstering employee welfare.

Who is Eligible for the Association Retirement Plan (ARP) Based on Connections?

Small businesses that are located in the same city, county, state, or multi-state metropolitan area, or belong to the same industry can be eligible for the Association Retirement Plan (ARP) based on their connections. These connections can be established through a professional organization such as a chamber of commerce or a trade organization.

Additionally, small businesses that are part of a Professional Employer Organization (PEO) also qualify for the ARP. This enables these businesses to collaborate and offer their employees retirement benefit packages that are typically associated with larger companies.

What Percentage of Income Can ARP-sponsored Plans Replace?

Workers participating in Association Retirement Plans (ARPs) have the potential to replace as much as 79% of their income upon retirement. ARPs, introduced by the U.S. Department of Labor, offer a retirement savings opportunity for employees of small businesses.

These plans connect small businesses in the same city, county, state, multi-state metropolitan area, or industry through professional organizations or Professional Employer Organizations (PEOs).

By leveraging the power of larger groupings, ARPs enable smaller businesses to provide their employees with benefit packages akin to those of larger corporations. This opportunity addresses the lack of available workplace retirement plans for millions of Americans.