Small business owners have found ways to outsource many of their non-business related functions, including the benefits they provide their employees.
And now, thanks to innovative services in the retirement planning industry and favorable treatment among our nation’s policy makers, they can outsource most of their retirement plan responsibilities as well.
The Multiple Employer Plan
A multiple employer plan (MEP) is a group of unrelated businesses that combine their 401(k) plan assets together to leverage the benefits of pricing, operational efficiencies and fiduciary oversight.
Small business owners, who have chosen to join a MEP, often choose to join as an effective way to manage their 401(k) responsibilities and risks, while experiencing favorable pricing and administrative support that they would probably not otherwise have access to or receive. Multiple employer plans are most commonly offered as an extra benefit through Professional Employer Associations (PEO) and closely affiliated professional associations.
PEOs can also help business owners increase their productivity by helping them outsource a multitude of human resources tasks including payroll, benefits, recruiting, training and development, and more. Joining an multiple employer plan can also help increase investor confidence and engagement, and ultimately lead to better retirement outcomes for today’s employees.
Here are three important advantages these plans can provide:
- Efficiency
Many business owners underestimate the time and effort it takes to properly operate a 401(k) plan. It is also common for them not to realize just how many associated administrative responsibilities are simply not being done or completed properly. Joining a MEP can make it easier for business owners to provide a 401(k) to their employees, as the MEP assumes the role of plan sponsor and assumes many of the most critical administrative tasks that currently fall on business owners. While small business owners recognize the importance of this benefit, few have the time and experience necessary to focus on their 401(k)—rather, they prefer to focus on growing a successful business. MEP participation is an effective way to outsource most of these 401(k) responsibilities.
- Fiduciary Support
Today’s regulatory climate has made many companies hesitant to assume any more risk than necessary. In fact, many business owners are looking to reduce their risk. Participation in a MEP is an excellent option to help business owners mitigate their risks in the marketplace and within their business.
With a MEP, the PEO or association takes over a fiduciary role as the plan sponsor, which helps reduce the business owner’s fiduciary liabilities while also relieving them of many of the administrative responsibilities. MEPs can serve as a perfect home for advisors’ small business plans as these organizations drastically reduce risk and seek to minimize fiduciary concerns.
- Cost
Compared with the potential costs of sponsoring a retirement plan on their own in the open market, participating employers in a MEP often realize competitive or lower investment, time and opportunity costs. Be aware, some MEP costs are the same for every plan, while other MEPs are structured to reward individual plan growth. For plans expecting to grow, the second option may be preferred.
What’s next?
Members of PEOs and associations will continue to enjoy the benefits of the MEP. Providers and legislators are opening doors and innovating in this space. In the near future, full “Open MEPs” may become an option for business owners who are not part of an association or a member of a PEO.
This is a tremendous growth area in the retirement planning space, and advisors should consider and discuss this innovative option when working with associations and small business owners. Offering access to a retirement plan through a MEP provides small business owners with a turnkey benefit, allowing them to spend more time focusing on what they do best: their core business.
Jim McCrory is director of PEO/MEP Retirement Plan Sales for Lincoln Financial Distributors.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
