So-called “open” multiple employer plans (MEPs) allow multiple unrelated and unaffiliated employers to participate in a single plan that is recognized as such by both the IRS and DOL purposes. In 2012, however, the DOL put out two Advisory Opinions that effectively closed the door to open MEPs.
Ever since then, there have been lots of legislative proposals from both Democrats and Republicans that would allow open MEPs, but none has made it through Congress. Additionally, given the DOL’s guidance from earlier this year (which is now being challenged by 12 states) on "Association Health Plans" — effectively, open MEPs for health care — it is possible that the DOL might act on its own to open up MEPs.
While there are some variations on the open MEP proposals that have been introduced in Congress, there is significant agreement on their basic framework in two important areas:
- an open MEP should allow a plan sponsor to offload significant plan fiduciary responsibilities to an open MEP and its service providers; and
- there needs to be regulatory oversight of open MEPs and their providers to help protect against potential abuses.
Where disagreement arises, it often relates to which employers (small employers only?) should be allowed in an open MEP and whether employers should have any fiduciary responsibilities with respect to their participation in a MEP.
NAPA and its membership have taken a strong stance that employers participating in open MEPs should continue to have some responsibility to monitor the open MEP because, in fact, in the most notable case where there was abuse of an open MEP, one of the employer members was actually the party that found the abuse.
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So why is this topic relevant now? Simply put, it is likely that open MEP legislation or regulation will move forward in the next year or two (of course subject to the normal changes in the political winds). Given this fact, plan advisors are now wise to consider how open MEPs will impact their business. Some considerations include:
- Choosing an Open MEP. While open MEPs will not be the solution for all clients, they are likely to be of significant interest to many small employers. Does the plan advisor have an open MEP with their broker-dealer or RIA? Does the advisor have a choice of open MEPs? There is no one right answer — but there are costs, controls and long-term business needs to consider. In addition, if you are tied to a particular MEP, don’t be surprised if a competitor comes along and pitches your plan sponsor client on a service to monitor you (which I call “mind the minder”). This is already happening in some areas of the industry, and it’s bound to become more widespread in the future.
- Creating Your Own Open MEP. A key question I have seen many advisors consider is: “Do I create my own open MEP for my clients?” A key issue to remember here is how to select your own open MEP when you are advising a fiduciary without triggering potential liability. There are solutions that can be used, but beware statements that it is “ultra-easy” and without risk because, as I have seen in practice, DOL investigations of open MEPs can be costly and complex at a minimum.
- Providing Services to an Open MEP. Open MEPs will require a wide range of advisors, from investment managers (such as 3(38) investment managers) to recordkeepers, administrative fiduciary providers, and more. Is there a place for your services in one or more open MEPs?
- Focusing on Compliance. As noted above, when you are creating or providing services to a MEP, you may be wearing multiple hats. Given the DOL’s Plan Investment Conflicts project, it is essential to consider the easily missed question, “Will I have prohibited transactions or other self dealing?” Having worked with many advisors on existing “closed” and already-permitted MEP structures, I can confirm that the “foot faults” and exposures created by inadvertent errors are often complex, burdensome and costly.
Open MEPs will create a world of opportunity for plan advisors. At the same time, as with any new line of business, there will be new risks and exposures moving into the world of open MEPs. In the end, however, open MEPs hold much potential for advisors and many plan sponsors.
David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column appears in the latest issue of NAPA Net the Magazine.