Legislation currently under consideration on Capitol Hill could require many small businesses that currently do not have employer-sponsored retirement plans to automatically enroll their employees in individual retirement accounts (IRAs) or 401(k)-type plans. The proposed legislation is part of a retirement provision of the $3.5 trillion Build Back Better Act, designed to help close the retirement plan coverage gap and boost savings opportunities for American workers.

The retirement provision was approved by the House Ways and Means Committee in September, and at the time of writing, is before the House Budget Committee for review. While there is no guarantee that the proposal will be approved—legislators could axe it at any time—it could dramatically change the way Americans save for retirement. If passed, the legislation would require employers that have existed two or more years, that employ five or more people, and do not currently sponsor a retirement plan to automatically enroll employees in an IRA or 401(k)-type plan.

Going forward, this could impact many startups and small businesses that WTIA serves in the tech community. While there are literally hundreds of providers that offer varying types of retirement savings plans, it may make sense to consider joining our national 401(k) Multiple Employer Plan (MEP) should you soon be legally required to automatically enroll your employees into a retirement plan.

What is a MEP?

Typically, employers have two primary options when it comes to offering a 401(k) plan: single-employer plans, which provide benefits to a single employer’s employees; and multiple-employer plans, or MEPs. A MEP is offered by two or more unrelated employers, which enables smaller businesses to share the administrative burden of offering a tax-advantaged retirement savings plan to their employees. On its own, a small company may not be equipped to handle the administrative costs, complexity, liability, and sheer amount of paperwork involved in many plans. Given these factors, it may make sense for an employer to outsource these responsibilities by joining a MEP.

Why consider the MEP? 

Offering a 401(k) plan can help improve employee retention and recruiting efforts. With employees switching or leaving jobs by the millions, it’s important to provide your workforce with a competitive benefits package that includes an option to help them save for retirement. According to a survey of human resources professionals from the Society of Human Resource Management (SHRM), 71% of employees report that retirement benefits are among the most important to them.  

While most employers recognize the importance of offering key benefits like a retirement plan, many small businesses struggle to set it up on their own. The WTIA 401(k) team takes the guesswork out of implementation. The MEP is a turnkey retirement savings plan solution built by tech, for tech, which makes it easy and seamless to set up. However, employers can opt to customize their individual plan designs and offerings to suit the unique needs of their employee population.  

For instance, the MEP offers built-in plan design flexibility, including the ability to add an automatic enrollment feature. Not only would this meet the auto enrollment requirement should the proposed retirement legislation become law, it would also help boost participation and savings rates. Typically, automatic enrollment defaults employees into the plan at a date of the employer’s choosing (i.e., upon hire or after a three-month eligibility waiting period), however, there is an opt-out provision that allows employees to elect not to participate. According to recent research from Vanguard, participation rates triple to 91% among new hires when automatic enrollment is offered, compared to 28% with voluntary enrollment. And nine in 10 participants increase their deferral rate over time, either through automatic contribution increases or on their own. Pending legislation notwithstanding, these positive trends demonstrate the benefits of offering a retirement plan with an automatic enrollment provision.

Other benefits of the WTIA Tech MEP include:

• The ability to leverage group purchasing power, which makes offering an employer-sponsored retirement savings plan more affordable for most companies, even growing and benefit-conscious businesses. We can set up a plan for as few as one or two employees, but with the MEP, employers receive the same caliber of service as larger plans.
• The plan design is customizable, meaning you can select options that make sense for your company and employee population.
• Flexible employer contribution options, such as matching, profit sharing, and more.
• A diverse lineup of top-performing fund families, including Vanguard’s target date series, Oppenheimer, and American Funds.  Also available are socially responsible funds from Calvert and Pax. 
• Administrative support, including discrimination testing, annual Form 5500 filings, and audits.
• Dedicated, personalized customer service, including one-on-one plan education for participants.
• The MEP benefits from partnerships with the experienced retirement planning professionals at Sound Consulting Services, which provides independent advice to 401(k) plan fiduciaries and participants, and the experts at NWPS, which delivers plan consulting and design, recordkeeping and actuarial, compliance and administration, and communication and participant services.
• A free WTIA membership is included when you join the MEP. You can read more about membership benefits here.

The Bottom Line

A retirement savings plan benefit is no longer a “nice-to-have;” it’s a must-have for tech employers who desire to compete in recruiting and retaining the best talent. And it may soon be mandatory should proposed legislation pass that would require you to automatically enroll your employees in a retirement plan. When that time comes, your company may not have the internal resources to effectively manage and promote a retirement plan for your employees. 

The WTIA MEP delivers holistic fiduciary and administrative support for employers, along with pricing efficiencies and total transparency that other types of retirement plan offerings may not. In addition, it is run by a dedicated governing board for MEP members that includes participating employers as well as WTIA members, which means members’ best interests are a top priority. For all of these reasons, joining the WTIA MEP is an option worth considering. 

To see if the WTIA Tech MEP is a good fit for your company, visit https://www.washingtontechnology.org/services/401k/, or contact the 401(k) team at 401k@washingtontechnology.org.