Undeterred by a federal court’s recent ruling striking down most of a Department of Labor regulation that allowed small employers and sole proprietors to band together to form association healthcare plans (AHP), DOL is giving top priority to finalizing a rule that will do much the same thing on the pension side. The proposed pension rule, which was published last October, is aimed at increasing the abysmally low retirement savings by employees of small businesses, whose employers more often than not do not offer pension plans, a laudable goal. As proposed, the rule expands the definition of “employer” in ERISA to allow unrelated employers and sole proprietors that are in the same general line of business, or in the same State or geographic area, to participate in a pension plan sponsored by an employer group, association or professional employer organization. DOL has said that it is aiming to release the final rule in June.
If the final rule looks mostly like the proposal, it is hard to say whether it would be a good thing or a bad thing for employees overall. Unlike the AHP regulation, which was seen by many as a fairly blatant attempt to undermine key consumer protections of the ACA, the pension proposal seems genuinely aimed at increasing the availability of such plans for more small businesses and not at undermining any of the protections of federal law. In fact, in its proposed form, the rule does not go as far as some industry professionals had wanted in expanding who may sponsor such plans, and it expressly prohibits financial services professionals – banks, insurance companies, broker-dealers, third-party administrators and the like – from sponsoring these plans. And it remains to be seen if, in issuing the final rule, DOL tightens the requirements for the sponsoring organizations by, for instance, mandating a minimum number of years of experience, staffing qualifications and capital reserves, as some commenters have urged. But, however well-intentioned the approach, by allowing unrelated employers and business owners with no employees to join association retirement plans, the rule cannot be easily squared with the employment-based context of ERISA. It takes precisely the approach that DOL took in its AHP regulation, and it is likely to be challenged in the same court and to suffer the same fate. Stay tuned for updates.
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