Are you itching to offer open MEPs and make them available to your small business clients?
If so, you are likely keeping a close eye on the SECURE Act, the wide-ranging retirement plan reform bill recently passed by a 417-3 vote in the House and currently under consideration in the Senate.
Multiple Employer Plans, or MEPs, are among the key provisions included in the SECURE Act.
The open MEP provision is intended to make it easier and more economical for smaller employers to offer retirement plans by allowing for the creation of pooled retirement plan providers.
The plans could offer features and low-cost funds that bill supporters say have typically been available only to larger retirement plans with greater assets and more purchasing power.
The provision would also provide tax credits to small employers to join a pool and offer an open MEP to its employees.
Under current Department of Labor rules, only “closed” MEPs are allowed, meaning participating small businesses must share common organizational traits, such as being in the same industry, area or being members of the same trade association.
The SECURE Act would remove the common nexus requirements and allow open MEPs for employers that don’t share common traits to be administered by the pooled plan provider.
The provision would protect small employers in open MEPs from penalties if other members violate fiduciary rules, also known as the “one bad apple” liability risk that a non-conforming member can pose to an entire plan. That issue has long been a stumbling block for MEPs.
Would open MEPs work as intended?
While making it easier and more economical for small businesses to band together to create retirement plans for employees is not a particularly controversial idea, there is some uncertainty about how effective open MEPs would actually be in helping expand access to 401k plans, whether retirement plan providers would be attracted to the market (and how soon products could be ready), and whether MEPs would really be a less-expensive way to provide retirement plans to employees of small businesses.
The provision has generated optimism in the industry as well as some skepticism.
“With the SECURE Act now [in] the Senate, we are especially hopeful about the possibility of extended retirement coverage for more Americans through more widespread adoption of open MEPs,” said Richard Rausser, Senior Vice President, Client Services at Pentegra, a White Plains, N.Y.-based provider of retirement planning and fiduciary outsourcing solutions.
401k advisors interested in offering open MEPs to small business clients are attracted by an opportunity to reduce costs, administrative headaches and fiduciary liability for those small business clients, who would in turn be encouraged to (finally) be able to offer a valuable and desired benefit to their employees without creating a lot of new work and potential liability for the small business owner as they wouldn’t be the “sponsor” of the plan.
“Employers are looking for low cost, little to no responsibility overseeing the plan, and minimal ongoing involvement administering the plan,” said Tom Reese, an investment advisor with employee benefit and investment advisory firm Conrad Siegel in Harrisburg, Pa. He adds the caveat, however, that “when you consider the additional cost of an independent party to oversee the plan, employers may not end up saving that much.”
Questions still need to be answered
Reese, who specializes in investment policy statements, investment oversight, employee communications and fiduciary governance shared some of his thoughts about the pros and cons of the SECURE Act’s MEP provision with 401k Specialist recently, as well as if he thinks MEPs are a viable solution to expanding retirement plan access for employees of small businesses.
He said he thinks there are several things legislators and employers need to be thinking about with regard to MEPs, such as who is going to take on the fiduciary responsibilities of the plan and what liabilities exist when you have multiple employers, providers and consultants involved?
“How much of the fiduciary oversight can you hand off to create efficiencies and manage resources, and how much of that responsibility do individual employers need to own to protect themselves?” Reese said.
If the goal of the MEP is to streamline process and cost to make retirement plans more accessible for small employers, he said that likely means a more limited fund menu and limited choices when it comes to the design of the plan.
“So you have to ask yourself, am I willing to make that trade-off and give a little on plan customization and investment choice?”
Reese also poses the broader question of, once you factor in the resources to administer and oversee the plan, as well as liaison with all the employers and parties involved, “is the cost-savings enough to make it worthwhile and will it be easy to implement?”
At Conrad Siegel, he said they’ve noticed more businesses and states turning to the automatic IRA option of late. “The idea is that this approach is simple and easy to implement and will gain traction, but that remains to be seen,” Reese said.
“This is a complex issue and there’s no one-size-fits all solution because each employer has different goals, different participant audiences, and a different infrastructure in place to operate a plan.”
Pump the brakes
Many believe open MEPs have the potential to be the next big disruptor for the retirement plan market, and that many medium-sized and even large employers would consider a move to one in an effort to reduce fiduciary liability and administrative costs.
But nothing’s going to happen overnight. Even if the SECURE Act makes it through the Senate this summer and is signed into law by President Trump, it is expected to take significant time before an open MEP market could get up and running.
Guidance will need to be provided and regulations will need to be created on topics such as who can sponsor a MEP, who can provide services, setting compensation and much more. The role advisors, recordkeepers and TPAs would play in an open MEP market is murky right now at best.
The real race to grab open MEP market share begins if the SECURE Act becomes law.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.