MEPs: On the Cusp of Proliferating?
Are multiple employer plans (MEPs) — single retirement plans involving two or more unrelated employers — on the brink of becoming more widespread and a more important part of the retirement plan universe? Perhaps.
Momentum has been building for many years and has accelerated lately. In 2014, the ERISA Advisory Council threw its support
behind MEPs as a means of encouraging plan formation and issued a report to Secretary of Labor Thomas Perez that included suggestions that the Department of Labor (DOL) develop a sample structure for MEPs that will help ensure that conflicts of interest, prohibited transactions, fiduciary independence and disclosure are addressed and develop rules or safe harbors for MEP sponsors and adopting employers that would minimize their liability from the actions of adopting employers.
In addition, in a January 2016 White House blog entry the Obama administration announced its desire
to extend MEP access to the private sector. Nevin Adams reported
that the White House said it was “proposing legislation to allow multiple unrelated employers to come together and form pooled 401(k)s, resulting in lower costs and less burden for each employer.”
Adams noted, however, that an administration can announce an intention to propose legislation, but it takes actual action on Capitol Hill to introduce and pass a measure the president can sign. The latest of those measures, the Retirement Enhancement and Savings Act of 2016, on Nov. 16 was put on the Senate calendar
for a vote. According to its sponsor, Senate Finance Committee Chairman Orrin Hatch (R-Utah), it includes provisions will allow open MEPs for employees working for companies of all sizes. American Retirement Association Director of Legislative Affairs Andrew Remo noted
after the bill’s unanimous approval by Hatch’s committee that the Modified Mark — or amended version — of the measure would allow two or more unrelated private employers to adopt a defined contribution pooled employer plan (PEP) — a new brand of MEP for the private sector — as long as the PEP has a pooled plan provider (PPP) as the named fiduciary to the plan.
Greg Iacurci in Investment News argues that
MEPs are in their ascendancy, writing that “a confluence of factors is likely, in the near future, to make such retirement plans more popular for plan advisers serving small-market clients.”
Iacurci says that the current rules cause many advisers and practitioners to consider MEPs “unwieldy” but that the bill currently under consideration on the Hill and the DOL’s fiduciary rule may boost MEPs’ prospects. Brian Graff, CEO of the American Retirement Association and Executive Director of ASPPA, told Iacurci that if the legislation is enacted, there would be “a lot of interest among broker-dealers and plan advisers in setting up MEPs for existing small plans to reduce costs, and to help with compliance with the fiduciary rule.”
Terrance Power, president of third party administrator The Platinum 401k Inc., said that if the bill is enacted, open MEPs would be treated no differently than a closed MEP and also cited cost savings that could result for those who set up MEPs. He told Iacurci that participating employers could save “several thousand dollars per year in audit fees alone.”
The bill also theoretically would make it possible to establish an MEP and merge existing clients into it, John Kalamarides, senior vice president of institutional investment solutions at Prudential Retirement, told Iacurci. Aaron Pottichen, retirement services practice leader at CLS Partners, told Iacurci that if it is possible to establish open MEPs, that is what his firm probably will do in order to be competitive.
At the same time, notes Iacurci, the presence of open MEPs may not be a panacea. For instance, Pottichen told him that it could result in consolidation among the biggest established MEPs and less competition among MEP sponsors. In addition, he warned that advisers that hope to sponsor an MEP may need to be careful to avoid conflict of interest in doing so.