These days you hear a lot of talk about multiple employer plans, or MEPs (not to be confused with the troubled multi-employer plans, about which you also hear a lot of talk these days). So what do NAPA Net readers think about the potential? And is it a threat or an opportunity?
Overall the sentiment was positive – very positive, in fact. A full third said they felt “great” about MEP opportunities, and another 31% felt “good.” The rest split between bad (7%), not good (9%), not so hot (14%), and “meh” (you can do the math).
Things were a bit more muted when it came to the possibilities for a legislative solution, though 41% described the prospects as “pretty good,” and nearly one in five (19%) were willing to say they considered the odds “better than even.” That left a third who said “who knows?” – and the remaining 7% characterized it as “about the same as staging a snowball fight in Hades.”
MEP Impact(s)
Setting aside the legislative prospects, we asked readers to weigh in on what might happen if MEPs for unrelated retirement plans were to be approved. The results?
- 59% - consolidation of current plans into MEPs
- 45% - more plan adoption
- 43% - lower fees
- 17% - fewer plan audits
More than a quarter (28%) said “all of the above.” On the other hand, there were a number of verbatim comments about the outcome(s) that were decidedly negative, including these:
- Further disregard by company sponsors re: ERISA regs.
- Employers will be “sold” on lower fees, reduced fiduciary liability and fewer audits. Employers will need significant education as they will not understand the nuances and the potential testing, eligibility, and vesting rules across adopting employers. Employers will also not fully appreciate the exposure to administrative problems and governance issues.
- Consolidation of TPAs.
- A huge mess of plans that have compliance issues.
- Reduced service quality for those who participate.
We also asked readers if a legislative solution were to emerge, would they take advantage in their business – and, sure enough, roughly 42% said “definitely,” while another 12% said “probably.” That said, 10% weren’t sure, 7% said it wasn’t likely, a like number indicated it would “depend,” while the rest simply said “no.”
“Probably, but a lot depends on our software provider's ability to adapt,” noted one reader, while another said, “It depends on the quality of the MEP.” Another commented: “Possibly – it depends on our competitors – if they jump, we’ll have to follow.”
We also asked readers if they thought their clients would take advantage (if a legislative solution emerged), and their responses were:
- 26% - not sure
- 24% - probably (one reader commented “probably – our customers are CHEAPSKATES”)
- 17% - definitely
- 12% - some would
- 10% - not likely
- 7% - depends on the particulars
- 4% - no
Other Comments
This week’s reader poll drew a high number of energetic responses – and quite a number of verbatim comments. Here’s a sampling:
“Most plan sponsors do not fully understand their fiduciary responsibilities so outsourcing any of these responsibilities to a MEP makes further sense.”
“Currently the ‘Open MEP’ is more of a marketing tactic then anything. We have had several plans leave that model due to lack of control and poor administration of the plan. We have also had a plan that was nailed by the DOL because of late contributions that should have been identified as well as several other administration failures.”
“Unintended consequences, such as just another move to allow the large investment firms to further take over the market.”
“Significant education and training will be necessary for employers and industry professionals.”
“If it ends up like ____ (employers attracted to cheap plans, then get poor service), that is no solution.”
“The claimed economy of scale for open MEPs only happens with a plan-in-a-box and the service providers cutting corners. Testing is still done at the employer level and someone still has to track deposits by employer. With the exception of the Form 5500/5500-SF, the same work still needs to be done for each employer under a MEP as a single plan. Large employers may benefit from a combined audit instead of a single one, but I don’t see a significant reduction in work needed for small plans. However, I’m sure the large firms would offer open MEPs with cheaper fees and their clients won't have a clue, or care, if everything is being done correctly.”
“This is a great solution for small employers wanting to offer a 401(k) benefit to their employees, without having the headache and responsibility of running a plan. A Local Chamber of Commerce or Business Association would be a great platform for a MEP.”
“I’m curious if the same trade groups and businesses that opposed state-run auto-IRAs because they felt IRAs were inferior to ERISA plans will oppose RESA’s IRA provision. I highly doubt it. Seems that really was never the issue and those trades and businesses that threw their support behind the retirement CRAs are not concerned with the retirement crisis, just competition. To quote our POTUS: SAD!”
“MEPs are a great solution for small employers, many of whom do not have the time or expertise to administer a plan correctly. The administrative offload is the primary advantage and the lower fees is a secondary benefit. The primary obstacle that exists for small employers, even within an MEP, is the nondiscrimination testing requirements; primarily the Top Heavy test, which is heavily skewed against small plans with less than 25 employees. While implementing a safe harbor contribution is a great solution, many of these ‘small businesses cannot afford to do so. At the same time, they cannot afford being Top Heavy and so participation in a 401(k) plan, including MEP, is a non-starter. If Congress were serious about solving the retirement crisis, they would create additional ‘safe harbors’ for these small businesses, specifically around Top Heavy testing.”
“There is very little competitive pricing information out there on MEPs. Hard to use a resource, like the 401(k) Averages book as it prices individual 401k plans. Do not see as much benefit price benefit with open MEPs as it seems most are priced based on tiered asset size.”
“‘These days you hear a lot of talk about multiple employer plans, or MEPs.’ You mean, within our industry there is a lot of talk about MEPs. Nobody outside our industry is clamoring to commingle their plan assets with the assets of unrelated employers. MEPs were a great idea 20 years ago when fund minimums were higher and all RKs charged asset-based fees – in other words, when ‘economies of scale’ were possible by bundling assets. Today, any 401(k) plan can access low-cost investments and a growing number of RK base fees on participant headcount.”
“Unappealing (MEPs, not life in general).”
“It’s only a matter of time at this point. We’re prepping our TPA business to become a 3(16) Plan Administrator on Pooled Employer Plans under the proposed legislation. Advisers will be establishing their own PEP's as Pooled Plan Providers. We've been working with MEP clients for 27 years. It will be interesting (again) to see inexperienced service providers attempt to get involved in this complex marketplace once there is more clarity from Washington. Also, don't be surprised to see a reversal of the ill-advised DOL Advisory Opinion 2012-04a which took some of the benefits away from Open MEPs. Sooner than later, btw.”
“State-run IRAs. I actually am in favor of them, as long as they are not exempt from ERISA protections. Some employers will never adopt a plan. But if an employer is forced to go into a state-based plan, this fact will, I believe, prompt many to get themselves into a 401(k). The result: more employees covered under an employer-sponsored plan and more business for us all!”
“Unrelated MEPs are likely to result in an ugly mess of plans that are not administered properly, poorly designed, and fall out of compliance. Organizations like payroll companies and bundled asset providers will sponsor MEPs with lower prices and built in administration costs, put plan design and administration will be put far behind asset gathering. Sponsors will unknowingly sign waivers when they adopt the plan and then be left holding the bag when the plan is hit with huge penalties and excise taxes.”
“MEPs are a great idea although this can be the inevitable herding cats scenario. Marketing them will be difficult at first, but can solve a variety of problems for companies wondering if & how they should provide a retirement plan.”
“This is a great idea, but the quality of the provider(s)will be key. I have seen terrible results for plans when the working components do not work well. Employer education is also crucial.”
“MEPs and state-run IRAs create logistical and fiduciary complexities that I think litigators will have a field day on and a lot of plan sponsors will feel like a number... not a valued client.”
“I think asset custodians would need to step up and offer fully divisional recordkeeping. Also, the easiest MEP would be safe-harbor only, with no need to individual ADP or top-heavy testing.”
“The Top Heavy rules do not anticipate MEPs; there are a lot of snakes in the woodpile.”
“MEPs seem to make the most sense for large plan filers with limited company resources in terms of matching. The vendor price efficiencies that are touted aren’t very impressive. Take the ABA MEP, those plans over 2mm are basically subsidizing all of the small plans in the MEP. They would be better served outside of the MEP. I just don't see it.”
Thanks to everyone who participated in this (and every week’s) NAPA Net reader poll!
