As we all know, the employee workforce is increasing complicated. The so-called organizational man (now person), an individual who stays with the same company for 30 or 40 years only to retire with full pension and benefits, is increasingly extinct. Advances in communication technology, new and creative affiliation models and significantly shortened tenure in any one job have resulted in incredible opportunities, but also significant challenges for retirement plan access.
For instance, what happens when employees of small businesses hold two or more positions at two or more separate companies?
Multiple employer plans (MEPs)—single plans providing benefits to the employees of two or more employers—have been utilized successfully for years by trade associations and professional employee organizations. Unfortunately, current laws discourage or prevent most small employers from taking advantage of them.
What’s to be done?
Prudential Retirement issued a report “Multiple Employer Plans: Expanding Retirement Savings Opportunities,” to address the question.
“Ignoring the current retirement coverage gap is a disservice to millions of hardworking Americans who need help preparing for retirement,” said Jamie Kalamarides, senior vice president of institutional investment solutions with prudential retirement and one of the authors of the paper. “Making it easier for small employers to participate in MEPs would go a long way toward improving retirement outcomes.”
Employer-sponsored retirement savings plans have become a critical component of the private retirement system in the U.S., and a proven tool for helping working Americans prepare for life after work. According to calculations by the Employee Benefit Research Institute, people earning between $30,000 and $50,000 per year are 16.4 times more likely to save for retirement if they have access to a workplace plan.
Important points to be considered with a model multiple employer plan include the following:
- Automatic enrollment of employees and automatic escalation of employee contributions.
- Automatic deferral of employee contributions into an investment option designed to preserve principal. After four years, contributions would be made to a qualified default investment alternative, such as a target-date fund.
- A lifetime income solution among the plan’s investment and/or distribution options.
- Streamlined administration through standardized plan design.
- Clear delineation of fiduciary and administrative responsibilities, ensuring that each plan is managed in the best interests of its participants and beneficiaries, with those responsibilities assumed by benefit and investment professionals rather than participating employers.
Prudential Retirement’s Bennett Kleinberg, vice president, Institutional Investment Solutions and the third author of the paper said “revamping current rules will not only help to close the retirement coverage gap, it will improve savings opportunities by affording employees of small employers access to professionally managed, institutionally priced retirement programs funded via convenient payroll deduction.
“Employee access to retirement savings opportunities in workplace also makes small employers more competitive with larger employers who can more easily assume the costs and responsibilities associated with sponsoring a retirement plan,” he added.
See Also:
- Dispelling Cost Myths of MEPs, PEPs and GoPs
- CAPTRUST Launches ‘MEP/PEP Alternative’ for Smaller Employers
- Few Advisors Working MEP/PEP Market… For Now
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.
