Small Business 401(k)s: How to Leverage the Multiple Employer DOL Rule

Businesses can now share the costs of setting up a joint 401(k) plan

If you own or are employed by a small business—and are among the approximately 38 million people in the U.S. with no access to a retirement plan at work—you may be interested in the U.S. Department of Labor (DOL) rule that took effect Sept. 30, 2019.

This rule clarified how small and medium companies, as well as individual “working owners,” can participate in a defined-contribution retirement account such as a 401(k) by joining what is known as an association retirement plan (ARP).

Key Takeaways

  • A 2019 DOL rule made it easier and less expensive for small business owners to offer a 401(k) to their employees.
  • Self-employed working owners are also eligible to participate in these plans.
  • The rule created a new kind of multiple employer plan (MEP) called an ARP that lets companies in different industries join to open a group 401(k) if they are in the same geographic area.
  • Companies in the same industry can open a plan no matter where they have a physical presence.

Association Retirement Plan (ARPs) Explained

An ARP is a new form of multiple employer plan (MEP), a retirement savings plan involving two or more unrelated employers. Until the creation of ARPs, MEPs limited members to employers with certain connections, such as a common owner or membership in an industry trade group. In that sense, MEPs are considered “closed.”

The DOL multiple employer rule makes it easier for small employers to offer a retirement plan to employees by expanding the rules to include companies in different industries with a physical presence in the same geographic area (city, county, region, or state) or companies in the same industry even if not in the same geographic area.

The DOL created the rule by interpreting previously unclear guidelines under the Employee Retirement Income Security Act (ERISA) of 1974. It’s important to understand that, even with the new interpretation, an ARP is still not an “open” MEP, in which the only thing employers have in common is participation in the plan.

139.6 million

The National Compensation Survey of Employee Benefits in the U.S. in March 2020 revealed that 71% of all workers surveyed, or 139.6 million workers, have an employer-sponsored retirement plan available to them.

Breaking Down the Multiple Employer Rule

Under the DOL rule, an ARP can be offered and administrated by a “bona fide” group or association of employer members, such as a chamber of commerce, or by a professional employer organization (PEO). PEOs are human-resource companies that take on certain employment responsibilities for member businesses.

Banks, insurance companies, broker-dealers, record keepers, and companies that provide retirement plan products are not currently permitted to participate.

A bona fide group or PEO acts as a single employer for all employees of member companies for purposes of sponsoring and administering the ARP. The only types of retirement plans allowed are defined-contribution plans, such as a 401(k). In addition to employees and owners of member companies, qualified self-employed working owners may also join the ARP.

Bona Fide Group or Association

To qualify as a bona fide group or association, an organization must act in the interest of member companies or working owners and agree to establish a benefit program. It must control the amendment process and plan termination and perform other functions on behalf of members. It must also have a close economic or other connection unrelated to the 401(k) plan or other benefits.

In other words, it must be a bona fide business organization that shares a common interest with member businesses unrelated to benefits.

The DOL further requires that employer members of the organization exercise control over the benefit plan, both in form and substance. Examples of bona fide organizations include a local chamber of commerce or other local, state, or national professional organization or trade group.

Professional Employer Organization (PEO)

A PEO acts “in the interest of” client companies to provide a variety of financial and human resources services to client companies including federal tax withholding, Internal Revenue Service (IRS) reporting, payroll functions, employment responsibilities, and more. Many PEOs already offer MEPs. The DOL rule essentially provides a safe harbor for “bona fide” PEOs to continue or begin taking on that responsibility moving forward.

To be considered “bona fide,” a PEO must meet four requirements: that it perform substantial employment functions on behalf of its clients, have substantial control over the MEP or ARP, ensure that each client company has at least one employee who participates in the plan, and offer the plan only to those clients and their employees.

Qualified Self-Employed Working Owners

If you are a self-employed working owner, the rule allows you to join an ARP established and maintained by a bona fide group or organization (such as a local chamber of commerce) but not one maintained by a PEO. To be considered qualified, you must work at your business at least 20 hours per week or 80 hours per month, on average, or earn income at a certain level.

In the case of earned income, the requirement is that you earn enough to cover the cost of an association health plan (AHP) provided by the ARP. It’s worth noting that you don’t have to participate in the AHP, just earn enough to pay the cost of coverage if you decide to use earned income instead of hours worked as your metric.


In deciding whether to join an ARP or employ a PEO under the new DOL rule, you may also want to consider relevant portions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

This legislation goes much further than the DOL rule when it comes to access to MEPs by unrelated employers. It created “open” MEPs that allow companies that are not in the same geographic area and aren’t part of the same trade, industry, or profession to join the same MEP. The act also permits MEPS to be administered by a “pooled plan provider,” such as a financial services firm.

The SECURE Act also eliminated the “one bad apple rule.” The Act also says the provider must be the named fiduciary and plan administrator and register with the DOL or IRS.

What You Can Do Now

If you’re an employer or self-employed “working owner,” consider potential existing organizations you belong to that might qualify as a bona fide group or association for purposes of offering an ARP. At the top of your list should be the local or state chamber of commerce. Trade and industry groups could form other opportunities. Remember that local organizations can include companies or businesses in any industry. National groups must be related to your specific industry.

As a small business owner (self-employed worker-owners aren’t eligible), you may want to consider hiring a PEO that meets your business needs and offers an ARP as part of the package. To find out more about PEOs, check out the National Association of Professional Employer Organizations (NAPEO)’s Guidelines for Choosing a PEO.

The Bottom Line

Despite the advantages, there are reasons for caution when considering joining an ARP. Also, you may discover non-ARP alternatives using new technology and software that may make setting up your own retirement plan less expensive than you think.

All that said, the DOL rule makes it possible for small businesses to access competitive benefits packages at potentially lower costs and without much of the paperwork that typically comes with such ventures. At the very least an ARP may be worth exploring to see if it makes sense for you and your company.

Article Sources
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  1. Federal Register. "Definition of “Employer” Under Section 3(5) of ERISA-Association Retirement Plans and Other Multiple-Employer Plans."

  2. Department of Labor. "Fact Sheet: Final Rule on Association Retirement Plans (ARPs)."

  3. Bureau of Labor Statistics. "Employee Benefits in the United States, March 2020," Page 3.

  4. U.S. Government Publishing Office. "Further Consolidated Appropriations Act, 2020," Section 101.

  5. Federal Register. "Definition of “Employer” Under Section 3(5) of ERISA-Association Retirement Plans and Other Multiple-Employer Plans."

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