Labor Department Takes Significant Step to Reduce the Cost of Retirement Plans for Small Manufacturers
Earlier this year, President Trump issued an executive order requiring the Department of Labor (DOL) to take steps to expand the ability of small businesses to join with other companies to offer a single retirement plan for their employees, effectively reducing the cost of offering retirement benefits. Today, the DOL released a proposed rule to implement the executive order and enable small businesses to join with industry or local partners via a business association to offer retirement benefits to their employees.
A manufacturer that wants to offer their employees retirement benefits must address substantial administrative costs associated with such plans, which makes it difficult for small businesses to offer these benefits. In fact, less than half of American workers at companies with fewer than 50 employees have access to a workplace retirement plan.
The DOL’s proposal would reduce costs by allowing similarly-situated small businesses (connected by either geography or industry) to band together through a trade association or local business group to offer a single retirement plan, thus benefiting from economies of scale.
While additional rulemaking from the Treasury Department is necessary to fully implement these “pooled” retirement plans, the DOL’s action is a significant step toward allowing small manufacturers to use competitive 401(k) plans to attract talent in a tightening labor market. It’s also fantastic news for manufacturing workers. The higher fees charged by administrators of small employer plans can cut nearly one percent off a workers’ retirement savings. Compounded over a lifetime of investing, that’s a significant loss – which will be eliminated under the new rule. That’s a win for manufacturing workers across the country.