Are Two Employers Better Than One? An Empirical Assessment of Multiple-Employer Retirement Plans

Abstract

At least 50% of Americans have not saved enough for retirement. This is in part due to a lack of access to employer-sponsored retirement plans. Nearly a third of the U.S. workforce is employed by businesses that choose not to sponsor workplace retirement plans for their employees. Moreover, plans set up by smaller employers tend to be plagued by high fees that eat away at retirement savings. To increase worker participation in low-cost retirement plans, lawmakers across the political spectrum have coalesced around reforms to allow more small employers to pool their assets and to centralize plan administration through multiple-employer plans. The efforts culminated in 2019 with the passage of the SECURE Act, which dramatically expanded access to multiple-employer plans.

This Article shows that the bipartisan enthusiasm for expanding multiple-employer arrangements rests on shaky theoretical and empirical considerations. Drawing on newly hand-collected data for multiple-employer plans in effect prior to 2019, it argues that overlooked agency costs, market opacity, and the limits of the fiduciary governance regime have undermined the gains from asset pooling and centralized plan administration in existing multiple-employer plans. Furthermore, while larger single-employer plans typically leverage economies of scale and greater bargaining power to reduce plan fees, the benefits of plan size have not mapped directly onto existing multiple-employer plans. Instead, the Article reveals that total plan fees for existing multiple-employer plans are significantly higher than the fees for single-employer plans of comparable size. As policymakers and regulators implement expanded access to employer-pooling arrangements, this Article proposes governance measures to realize the full potential of aggregation for retirement savings programs in the United States.