[Update: The interview took place just prior to President Donald Trump’s executive order in late August that eases the way for use of multiple employer plans (MEP)]
They’re popular. Billed largely as a way to get more retirement plan coverage for workers, especially those at smaller companies, multiple employer plans enjoy bipartisan support from legislators and growing awareness among advisors and plan sponsors.
Several proposals to promote MEP use were introduced in Congress, with a flurry of activity occurring just last July to make it easier for small employers to establish 401ks. While much isn’t expected in the way of official passage in the run-up to the midterm election, 2019 could see big changes for retirement plans in general, and MEPs in particular.
Yet misperceptions about what MEPs can and can’t do persist, something Pete Swisher is on a mission to mend.
The senior vice president and national sales director with Pentegra Retirement Services is a major advocate for the MEP structure, calling it “a very big deal” going forward, and one which 401k advisors should take full advantage.
“I’m very conscious of the fact that people come up with new ideas, and whatever multiple employer plans are today, it will change tomorrow and 10 years from now,” Swisher says.
“There are a couple of facts at the foundation of these arrangements, but what people think they are [now] or are going to be in a few years is off.” With all we’re hearing about their potential, we asked Swisher to cut through the clutter for a clear view of what lies ahead, and the potential opportunity MEPs afford for retirement plans overall.
Q: Where are we now with MEPs and what specifically do you mean about misperceptions with the retirement plan structure?
A: Everyone expects legislation any day, and it’s been expected any day since late 2016. I would say anyone who expects anything legislatively from any Congress, including today’s, [is likely] to be mistaken. I make no legislative predictions whatsoever but, that said, there is enormous bipartisan support for a broadening of the use of multiple employer plans; no one questions this. There has been something like 15 separate bills since 2010, and all of them favorable to the concept of an open MEP with very similar provisions and bipartisan sponsorship and support.
You would, therefore, think that sort of thing would pass easily, but it’s not how the sausage is made in government, so we don’t have anything passed yet. The most recent estimate of something happening is that there’s no chance whatsoever of anything passing in 2018, but depending on what happens with the election, there could very well be a chance in 2019.
Q: What advantages and disadvantages do MEPs present?
A: There’s a fundamental starting point in the belief about what MEPs do, which is that they aggregate assets and clients in order to get discounts, and that their purpose is to drive pricing down. That is a point, but let’s examine the reality of that. There are numerous entrants in the marketplace that are attempting to use technology to drive down pricing. One very well-known solution costs about $3,500 to get the recordkeeping done for a plan with, say, five people. And that’s at the low-end of the pricing spectrum. There are other arrangements that are cheaper than that, but they charge a lot of basis points and then hope to make it up on the backend. So, call it a $4,000 “thing” to have a qualified plan.
The solution that everybody is looking for is how to turn it into a $1,000 thing or even a $500 thing. That’s not going to happen just because we put it in a MEP. You can’t take a $4,000 to $6,000 item and magically make it $1,000 just because we get a little bit of scale. You can get a little bit of a discount, but
that’s it. The nature of a MEP is not to slash pricing by 80 percent, but somehow that’s what people
think it’s about.
Q: So, what is it about?
A: It’s a powerful tool for simplifying the employer’s life. A MEP is not a product; it’s a plan design. The nature of that design is to centralize not only assets but administration. It’s the centralization of the administration and the elimination of “jobs” for the employer associated with maintaining the plan that’s so powerful.
There are three jobs—the plan sponsor job, the trustee job and the administrator job. The trustee job includes the investment management function. We can get rid of those jobs, to a degree, with 3(16) and 3(38), but you’re still the plan sponsor. You, therefore, still have to appoint fiduciaries and have a committee and have meetings and have minutes and do benchmarking and RFPs and RFIs and investment policy and so on, if you are a prudent fiduciary.
Well, small employers don’t want to be a prudent fiduciary; often, they don’t want to be a fiduciary at all if they can avoid it. So, the MEP is better about getting employers out of the middle of those jobs. It takes those jobs away, and that’s powerful because they don’t want them.
But in order to take those jobs away, well, then somebody else has to take them.
If you’re the person who has agreed to take these jobs for all these different employers, what do you want that to look like? Do you want to work hard to drive the price down to the minimum, even if it means not fulfilling functions like lost participants, proper administration of QDROs and things like that?
Or are you going to want it to be right because you’re on the hook? That’s the answer. You’re going to have professional fiduciaries, or fiduciaries who recognize that they’re on the hook for a very big deal.
They’re going to make sure it’s right and that’s going to cost money.
What the MEP is, as currently available and likely to be available under any legislative proposal I’ve seen, is a wonderful tool for simplifying things for fiduciaries who don’t want to be fiduciaries. It will do so by transferring [liability] to professional fiduciaries cost-effectively, but there is still a cost.
Q: And the goal of making it cheaper?
A: That’s different. The goal of figuring out how to give the nine-employee company something very inexpensive will fall to some other solution that’s not currently on the horizon, other than payroll deduct IRAs and SIMPLE IRAs. There are great tools for that and they’re available today, but the 401k, as I said, is still a $4,000 to $6,000 thing.
Q: How big do you see MEPs becoming?
A: It’s a phenomenon that’s growing, and on that growth curve, it’s just at the beginning. It’s going to be a very big deal, and I think everybody knows that.
The Council of Independent Colleges in Virginia (CICV) has created a multiple employer plan. It’s an association of colleges that have said yes to this thing, and so far, it looks like their MEP will be over $700 million of assets, at least. That’s a pretty big thing.
You have a pent-up demand from associations to provide solutions for members. You also have a movement among serious retirement plan advisors and 401k specialists to find ways to streamline and simplify for their clients, and they’re asking about MEPs. New MEPS are getting created, and let’s use the term broadly—multiplan solutions—are being investigated, of which MEPs are one flavor.
Yes, there are DOL rules that say you can’t do an open MEP for ERISA purposes, and that’s fine. You still get these benefits through similar structures. So, there is this groundswell taking place of investigation that has led to action.
Some of that actually is highly visible and that visibility is increasing the activity. I’m going to say that MEPs represent something like 2 percent of the marketplace today, but it ain’t going to be 2 percent for long.
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.
