Multiple Employer Plans Have Bright Future
By: Lynn Brackpool Giles
As the election nears, 401(k) experts are keeping an eye on legislation that could make multiple employer plans (MEPs) an extremely favorable option.
MEPs have been around in some form since the 1960s, says Terry Power, president and CEO of The Platinum 401(k) Inc. A retirement plan established by one plan sponsor, a MEP can also be adopted by one or more participating employers. This vehicle transfers the fiduciary responsibilities and liabilities from employers to a MEP plan sponsor.
A closed MEP, explains Power, is where a nexus, or commonality, exists between the adopting companies (e.g., an association-sponsored plan exclusively for members). An open MEP has no nexus between adopters, although they might share a common payroll provider or geography.
Power became an “expert by proximity” -- his practice was located in the Tampa Bay area, which in the mid-1980s was a veritable hotbed of employee leasing firms. By the early 2000s, these firms needed a professional employer organization (PEO) in order to use MEPs. His firm today is a third-party administrator for numerous MEPs.
“Initially, multiple employer plans gave companies leverage through economy of scale and service while mitigating fiduciary responsibility and requiring only one overall audit,” he says.
That all changed in 2012, when the Department of Labor (DOL) issued an opinion affecting open MEPs: If there was no commonality between employers -- beyond a mutual administrative provider -- the MEP would not be considered a single plan under ERISA. This meant that participating employers would have to file individual Forms 5500, conduct separate audits and adhere to other compliance requirements of individual plan sponsors.
Jason Grantz, QPA, AIFA, managing director/East for the Retirement Planning Consultant Group at Unified Trust Co., remembers this time clearly.
“Leading up to 2012, I was hearing about MEPs all the time,” he said. “Then, the letter came out.”
The conversation on MEPs turned silent, Grantz says.
“I don’t believe it was meant to be a ‘hammer’ by the DOL,” he says. “They were just accurately interpreting ERISA at the time.”
MEPs have picked up again, though, over the past two years, thanks to a bipartisan effort to loosen DOL restrictions.
Another reason to address open MEP issues, Grantz says, is the DOL’s efforts to make state-run retirement plans more viable with an ERISA exemption and other benefits.
Since a number of advantages can be applied to state-run plans, there is a big difference between the regulations imposed on open MEPs and state-run plans, as well as an “unfair, competitive imbalance for the private sector,” Grantz says.
“The industry is holding out hope that it will be corrected” with upcoming legislation, he adds.
Power concurs; he sees DOL activity -- including a recent submission to the Office of Management and Budget that aims to ease burdens for state-run plans -- as an indicator that the agency’s near-term priority is expanding the availability of MEPs.
He adds that state-run plans will likely have a very rigid structure – “From the private sector perspective, I’d be happy to compete with them any day” -- and thinks the DOL is only easing restrictions because they think the states have, in the past, poorly overseen retirement plan assets.
Power begs to differ -- and has been vocal in this criticism.
“States and local municipalities have not had a great track record in running qualified plans,” he says “Many have done a horrible job.”
Both Power and Grantz agree, however, that the next six to 12 months will be a time of reckoning for MEPs.
Power, who has testified at MEP hearings in Washington, D.C., notes that bipartisan support of the plans from Sens. Orrin Hatch (R-UT) and Elizabeth Warren (D-MA) will drive momentum, with progress possible as early as this fall’s lame-duck Congressional session – if, that is, they can find the “right vehicle to attach the bill to,” Power says. “[If not,] I fully expect the next Congress to make it a priority to ease up MEP restrictions.”
Power also cites the DOL’s 2015 plan year revisions to Form 5500 as a sign that DOL activity is turning its attention toward open MEPs.
“The proposal would expand the information collected by a Form 5500, including listing all adopting employers, the percentage of each employer’s total deposits in the plan and more,” says Power. “They want a mechanism in place to identify every employer in a MEP to increase oversight” as they power towards easing restrictions.
“They definitely want to pull back the curtain, which is a good thing for both participants and the plan itself,” Power adds.
Plan sponsors are also at a greater risk of finding themselves on the defendant side of lawsuits over fiduciary missteps – a trend that will likely boost the favorability of MEPs even more, Power and Grantz add.
“If it’s properly set up, a MEP can provide a significant reduction in liability for employers because it requires several, independent fiduciary layers,” says Power.
With broad industry and political support, the future of MEPs seems especially bright.
“Very few are against the idea,” Grantz says. “Open MEPs will get its day; it’s just a matter of when.”
Power is more blunt: If MEP legislation goes through as planned, “it’s going to change the industry.”