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SECURE Act Expands Access to Multiple Employer Retirement Plans
Thomas Pierce

Most workers view their 401(k) or other retirement plans as important employee benefits, yet only a fraction of small businesses, including many restaurants, offer such plans. Businesses that decline to provide retirement benefits typically cite the high cost of sponsoring a qualified plan, although technological innovations and other developments in recent years have reduced the cost dramatically. And now, a new law promises to lower these costs even more by making it easier for small businesses to achieve economies of scale by joining multiple employer plans (MEPs).

The Setting Every Community Up for Retirement Enhancement (SECURE) Act — enacted as part of the spending bill signed into law in December — is designed to help Americans set aside more for retirement by enhancing, and improving access to, tax-advantaged savings vehicles. One key change expands the availability of MEPs.

Related Read: “Retirement Plan Changes Under the SECURE Act

Everybody Into the Pool

The SECURE Act creates the pooled employer plan (PEP), a new type of “open” MEP that allows unrelated employers to band together to sponsor 401(k)s, SIMPLE IRAs and certain other retirement plans, beginning in 2021. Historically, employers that wanted to join an MEP had to satisfy several requirements, including demonstrating a “commonality of interest” apart from sharing the cost of employee benefits. In addition, the “one bad apple” rule meant that a qualification failure by one employer-participant could disqualify the entire MEP. These requirements prevented or discouraged many small businesses from participating in MEPs. To remove these obstacles, the SECURE Act abolishes the commonality requirement, essentially opening up PEPs to any employer who wishes to join, and eliminates the one bad apple rule.

PEPs will be established and maintained by “pooled plan providers” (PPPs), such as financial services companies, insurance companies or third-party administrators. PPPs must register with the U.S. Treasury and Labor departments, agree to be the PEP’s named fiduciary and plan administrator and meet several other requirements.

Benefits for Small Businesses

By facilitating access to high-quality retirement plans at a reasonable cost, PEPs are expected to give restaurants and other small businesses an additional incentive to provide retirement benefits to their employees. Additionally, they minimize employer risk by doing away with the one bad apple rule and shifting most (but not all) fiduciary responsibilities to the PPP. Employers also enjoy the benefits of the PPP’s expertise, technology and other resources.

Other Changes

The SECURE Act makes several other changes that affect employers, including:

  • Requiring 401(k) sponsors, beginning next year, to allow certain long-term, part-time employees to make deferral contributions (although they need not be eligible for employer contributions). Eligible employees are those who worked at least 500 hours in each of the previous three years and are at least 21 at the end of that three-year period.
  • Increasing the maximum dollar limit on tax credits for certain retirement plan start-up expenses incurred by small businesses from $500 to $5,000, starting this year.
  • Providing a $500 tax credit for employers that add automatic enrollment to their 401(k) or SIMPLE IRA plans, which also starts this year.

These are just a few of the many reforms made by the SECURE Act. The act also includes several significant retirement changes for individuals, including increasing the age at which required minimum distributions begin from 70-½ to 72, allowing IRA contributions beyond age 70-½, and permitting penalty-free withdrawals of up to $5,000 to cover qualified expenses after the birth or adoption of a child.

For more information, contact Thomas E. Pierce at [email protected] or 312.670.7444. Visit to learn more about our Restaurant Group.

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