The Rise of Multiple Employer Plans (MEPs)

Smaller to mid-sized firms, trade and professional associations, financial advisors and legislators are fueling increased interest in Multiple Employer Plans (MEPs). The concern about the low retirement savings rate for millions of Americans, particularly those who do not work for large organizations, sparked demand in MEPs as a solution for small to mid-sized institutions to provide quality retirement plan benefits to their employees.

Currently, smaller employers are far less likely to offer a defined contribution savings plan to their employees than larger entities. While 92 percent of large businesses with 500 or more employees routinely offer a 401(k) or similar plan, only 53 percent of small to mid-sized firms with 5 to 250 employees do. In a 2017 study conducted by The Pew Charitable Trusts, cost was cited by 37 percent and lack of organizational resources by 22 percent of companies as reasons for not offering a retirement savings plan. MEPs could eliminate these obstacles and make it easier for firms to offer a 401(k), 403(b) or a comparable plan.

The Benefits of a MEP

A MEP is a single plan adopted as a group arrangement which allows two or more unrelated employers to participate. The assets are aggregated in one plan, with a shared plan administrator or recordkeeper and common investment fund menu. Some MEPs do allow for some flexibility for adopting employers on selected plan provisions, such as eligibility requirements, employer contributions and vesting.

MEPs appeal to smaller employers who want to provide a retirement savings plan to their employees but do not have the associated time nor the financial or administrative capacity to maintain one on their own.

Benefits to participating employers include:

• The ability, through economies of scale, to offer employees a retirement plan for lower costs than a stand-alone 401(k) or 403(b) plan.
• Reduced administrative and plan maintenance burdens due to a single MEP sponsor (or service providers hired by the sponsor) being responsible for all administrative, recordkeeping, legal and most fiduciary responsibilities.
• One menu of investment options which streamlines fund changes, reporting and participant communications.
• Use of sophisticated, committed 3(16) plan administration fiduciary and 3(21) (or 3(38)) investment fiduciary to manage risks and potential liability.
• The MEP files the IRS Form 5500 and hires a certified public accountant firm to audit the plan, which considerably shaves off costs.
• The ability to offer more appealing benefits to retain employees and attract candidates.

Challenges for MEPs and Participating Firms

While a MEP offers many benefits and may seem like an all-in-one solution, there are a few challenges to consider for participating employers:

• Under the Employee Retirement Income Security Act of 1974 (ERISA), MEPs can currently only exist for employers with a common interest, such as the same industry, which is known as a “closed” MEP.
• While a single Form 5500 is filed, individual employers still retain fiduciary liability for selection of the plan and monitoring its activities.
• Under current tax laws, if a single employer violates a qualification requirement, the MEP could lose its tax-qualified status for all participating employers.
• The termination process of a firm’s participation with a MEP is complex. It could require the exiting employer to spin off assets to a whole new plan to terminate the MEP relationship.

Future Considerations and Getting Help

Congress and the Department of Labor would need to modify ERISA requirements to permit more groupings of employers to sponsor and participate in MEPs. For several years, federal legislators considered various measures to permit “open” MEPs and thwart moves to create state-run plans. Ideally, a final measure would address qualifications and other current issues besides employer commonality.

In the interim, technology has made 401(k) and 403(b) administration cheaper to deliver and enabled 401(k) and 403(b) plan providers to offer lower cost options for smaller employers. Additionally, studies show that almost a quarter of small business owners who do not currently offer their employees a 401(k) plan mistakenly believe they must offer an employer match.

Employers looking at ways to participate in a MEP, offer their own 401(k) or 403(b), or considering changes to their existing retirement savings plan should consult an independent expert in plan design, governance, investment options and recordkeeper services to learn more about available options.

PlanPILOT, an independent registered investment advisor, specializes in retirement plan consulting. Not tied to any investment bank or fund family, PlanPILOT offers plan sponsors objective advice on cost-effective retirement plans. For more information, call us today at (312) 973-4911 or email info@planpilot.com.

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