Multiple employer plans (MEPs) are not new. But what is new is the attention they are receiving and the possibility that they could be more widely available. A recent analysis offers a look at MEPs and what the results of making open MEPs possible could mean.
In “Multiple Employer Plans and Their Potential Impact on the Retirement Plan Landscape,” A JP Morgan paper, Dan Noto outlines where we are now and the proposals for expanding MEPs’ availability, as well as what that could mean.
A trade or professional organization sponsors the typical MEP for its member firms, writes Noto, and the resulting economies of scale can reduce the amount of time and money spent on plan administration and investments than would have been the case if the employer had offered a single plan. And, he adds, many MEPs can reduce fiduciary risk for employers as well.
Still, Noto suggests that MEPs are not a magic wand. He notes that employers are not absolved of all fiduciary duty if they participate in a MEP — they still have a fiduciary duty to choose and monitor the MEP provider. And the one-bad-apple rule, under which one employer’s violations can imperil the whole plan, is in force.
Expansion
Noto observes that the Department of Labor (DOL) reports that as of 2015, 4,592 defined contribution MEPs covered just over five million participants, but that amounted to 0.7% of U.S. DC plans and 5.3% of DC plan participants.
“Making MEPs more widely available — as policymakers are currently attempting to do — has been touted as a way to encourage employers without retirement plans to provide them for their workers,” says Noto.
President Trump’s August 2018 Executive Order, Noto notes, directed the Labor and Treasury Departments to consider changes to make it easier for businesses to offer MEPs. In October, the DOL issued a proposed rule that would allow professional employer organizations (PEOs) and certain employer groups, such as chambers of commerce, to sponsor defined contribution MEPs, he observes. But he adds that “the proposal stopped short of permitting truly ‘open’ MEPs”; nor did it address the one-bad-apple rule, which he attributes to that being under the jurisdiction of the Treasury and the IRS.
Capitol Hill has been more explicit than the DOL, Noto writes: “Over the past two years, several bipartisan bills have been introduced in Congress that would significantly expand the availability of MEPs by permitting unrelated employers to participate in a single plan.” He adds that a legislative fix for the one-bad-apple rule also has been fielded.
Import
Noto suggests that making MEPs more widely available could benefit small businesses and their employees and their dependents. “Open MEPs have the potential to change how small employers obtain 401(k)s or other defined contribution plans and how the retirement plan industry delivers services to this segment of the market,” he writes.
But small businesses may not be the only parties to respond to expanded availability, according to Noto. For instance, he suggests that recordkeepers, financial advisors, asset managers, banks and TPAs may band together to provide retirement plan services. And technology companies also may find that such a new environment offers them fresh opportunities. It could even fuel increased interest in MEPs among businesses that are not small and have established plans, Noto suggests.
“It’s probably too soon to predict precisely how the retirement plan landscape will change if open MEPs become a reality. But if they do, the number of MEPs and the percentage of American workers covered by these arrangements are almost certain to increase,” says Noto.
