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Closing the Retirement Savings Coverage Gap - Multiple Employer Plans

Employer-sponsored retirement savings plans have become a critical component of the private retirement system in the U.S., and a proven tool for helping working Americans prepare for life after work. According to calculations by the nonprofit Employee Benefit Research Institute, people earning between $30,000 and $50,000 per year are 16.4 times more likely to save for retirement if they have access to a workplace plan.

Unfortunately, tens of millions of Americans don’t have access to a plan on the job, leaving many ill-prepared to meet their financial needs after they stop working. This retirement coverage gap is most acute among employees of small companies, many of whom do not sponsor plans due to concerns about costs, complexity, and fiduciary liability.

The retirement coverage gap can and should be narrowed. While a variety of solutions are possible, there is a growing consensus in Washington that one of the broadest and most expedient ways would be to expand access to multiple employer plans, or MEPs, for small employers and their employees. MEPs—single plans utilized by two or more employers—have been deployed successfully for years by trade associations and professional employee organizations. Unfortunately, tax laws and regulations discourage or prevent most small employers from taking advantage of them. Removing those constraints is endorsed not only by several Washington lawmakers on both sides of the political aisle, but also by the U.S. Chamber of Commerce, AARP, many affinity groups, and the financial services industry.

For the small employer market, multiple employer plans would enable small businesses to participate in a single, professionally administered plan that affords them economies of scale and minimal fiduciary responsibility. The plans would provide employees of those organizations the same opportunities to invest for retirement that employees of large companies already enjoy on a near universal basis via 401(k)s and similar defined contribution plans.

This paper (PDF) outlines the legislative and regulatory actions that would be needed to broaden access to MEPs for small employers. It also describes the features that a model MEP might incorporate, including:

  • Automatic enrollment of employees and automatic escalation of employee contributions.
  • Automatic deferral of employee contributions into an investment option designed to preserve principal. After four years, contributions would be made to a qualified default investment alternative, such as a target-date fund.
  • A lifetime income solution among the plan’s investment and/or distribution options.
  • Streamlined administration through standardized plan design.
  • Clear delineation of fiduciary and administrative responsibilities, ensuring that each plan is managed in the best interests of its participants and beneficiaries, with those responsibilities assumed by benefit and investment professionals rather than participating employers.
Ignoring the retirement coverage gap would do a disservice to millions of hardworking Americans who need help preparing for retirement. Making it easier for small employers to participate in MEPs would go a long way toward righting that wrong.

Download Closing the Retirement Savings Coverage Gap - Multiple Employer Plans (PDF) to find out more.



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