A reader notes, “the MEP topic at the NAPA 401(k) Summit sparked some interesting discussion among advisors during the peer session” – and did so again in this week’s NAPA-Net Reader Poll.
MEPs, or multiple employer plans – more specifically “open” MEPs – have long been touted as at least a partial solution to the coverage gap, as a means to cost-effectively serve the smaller plan market, as well as a way to lower the barrier to plan adoption, among other things.
On the other hand, there’s little doubt that their emergence will have some impact – and potentially a negative one on certain business models. So, how did NAPA-Net readers see those prospects?
Coverage Closure?
Well, when it comes to coverage, a clear plurality – 39% – thought the impact would be “noticeable, but less than people think.” “I'd like to be proven wrong on this point, but I tend to think that it will take a while for them to gain traction,” noted one reader. “I think small business owners won't focus on it unless and until their employees’ lobby for it (or there's a government mandate).”
Indeed, one reader said “Honestly, I personally do not see much of an impact unless there is some mandate attached to it.”
Another 26% thought it would be “not much,” while about as many (27%) thought it would impact coverage “A LOT!” As one reader opined, “the impact would be huge. Primarily due to the efficiencies of governance, reduced fiduciary risk, reporting and the standardization as plan rules would be set by the trustees. The purchasing power of an Open MEP would help secure low costs especially in relation to investment costs. Similar to the success of Master Trusts in the UK, it is likely that Open MEPs will be of significant scale which is far more efficient (rather than many single 401(k) plans) and much easier to regulate and drive up standards.” Another noted, “The awareness in the news is going to generate interest, in and of itself. Once educated, I believe many will see the great benefits.”
The rest – 8% – thought the impact would be “none, at least none to speak of.”
As one reader explained, “If large vendors like Vanguard & Fidelity offered, their costs would be so low, it would drive a lot of small business owners like us out of the market.”
That said, according to respondents to this week’s reader poll, there’s going to need to be some education. Nearly 70% said that their plan sponsor clients “don’t even know what an open MEP is.” However, 17% said that while those plan sponsor clients “don’t care now, but just wait till I tell them how it can change things!” The rest split between “couldn’t care less” and “excited about the possibilities.”
Recordkeeper Response
Asked to assess the impact of open MEPs on recordkeepers, two-thirds (68%) said “they will be good for some, not for others.” Other opinions:
13% - will be good for their business
9% - will be VERY good for their business
5% - won’t have any impact on their business
4% - will be VERY bad for their business
“It will require a very efficient operating model as charges would need to be lower than industry norms. This would be challenging for some recordkeepers (and the recordkeeping underpinning platform),” noted one reader. “Open MEPs will help the payroll providers who also provide recordkeeping the most. They can use streamlined investment menus for a huge number of plans,” explained another.
While another reader observed “The big custody houses will just get bigger.”
Third Party Impact
Assuming open MEPs do come to be, we asked readers how they thought those programs would impact TPAs/third party administrators. Again, the answers were varied:
39% - They will be good for some, not for others.
26% - They will be VERY bad for their business.
22% - They will be bad for their business.
9% - They won't have any impact on their business.
4% - They will be good for their business.
“I think TPAs will always be needed, but you will see a lot of consolidation and those new much larger firms will be the ones working with the big custody houses. The rest of us will be out of the business,” noted one. “Those TPA only firms who partner with Record Keepers who offer MEPs will benefit the most,” commented another.
Personal Perspective
Indeed, asked what they how they felt personally about MEPs, 39% were “concerned,” though nearly as many (35%) were “mildly optimistic” and half that number (17%) were “excited about the possibilities.” The rest? “Couldn’t care less.”
“I am concerned about the level of service each plan sponsor will receive and how that will impact the long term retirement of their workers” cautioned one reader. However, another explained, “As someone who is record keeping and administering them, and has for 20 years, we have the expertise to see them grow.”
As for impacts on their business, respondents to this week’s NAPA-Net Reader Poll said:
31% - They will be bad for my business.
26% - They will be good for my business.
26% - They won't have any impact on my business.
13% - They will be VERY good for my business.
4% - They'll be VERY bad for my business.
“I don't think they're a panacea for the coverage solution but I do think it will be another tool in the tool box for plan sponsors and advisors to use where it makes sense,” concluded one reader.
We shall see.
Thanks to everyone who responded to this week’s NAPA-Net Reader Poll!
