When passage of the SECURE Act in late December opened the door for unrelated small and medium-sized employers to band together to offer a Multiple Employer Plan (MEP), the idea behind it was to expand the availability of employer-sponsored retirement plans to more workers at small businesses.
Turns out a lot of companies that already offer retirement plans to their employees—even some large ones—are also interested in exploring the potential benefits of so-called Open MEPs.
A new Secure Retirement Institute (SRI) study finds 56% of defined contribution (DC) plan sponsors would consider offering their retirement benefits through an Open MEP, if eligible. And two-thirds of plan sponsors with over 1,000 employees expressed interest in MEPs.
“The SECURE Act expands the number of employers eligible to participate in a MEP by eliminating the requirement that the employers share a common nexus, such as trade, industry, line of business, profession, or association,” noted Deb Dupont, associate managing director of Institutional Retirement Research, SRI. “While the industry is confident this law will increase the number of employers who offer retirement plans to their workers, our research shows there also is considerable interest with current plan sponsors who wish to take advantage of the potential cost savings associated with MEPs. These savings can benefit the organizations as well as their employees.”
Many employers unfamiliar with MEPs
The study finds one of the biggest obstacles facing MEP adoption is employers’ lack of familiarity with the plans. More than 6 in 10 U.S. employers who currently offer retirement savings plans have little or no familiarity with MEPs. Among the smallest employers, awareness is lowest—just 3 in 10 with fewer than 50 workers say they are somewhat or very familiar with MEPs.
“Today, nearly 4 in 10 U.S. workers don’t have access to a DC plan through their workplace. Our studies have shown the top reason people begin to save for retirement is because they have access to a workplace retirement saving plan,” Dupont said. “Conventional wisdom suggests small employers would most benefit from the economies of scale that MEPs offer. Improving awareness and understanding of how MEPs work will be important to see strong participation.”
Why plan sponsors are interested
Lower costs and reduced administrative burden are the most appealing reasons to participate in a MEP, according to the plan sponsors surveyed.
Not surprisingly, the survey found plan sponsors with 1,000 or more employees are only half as likely (compared with plan sponsors of smaller organizations) to be drawn to the possibility of reducing the administrative burden. For those who are very interested in a MEP, 55% said the ability to free up resources to provide other employee benefits is one of the most appealing benefits (see Chart 1 below).
As recordkeepers and other service providers to DC plans work to position themselves to take advantage of the new opportunity provided by Open MEPs (referred to in the SECURE Act as Pooled Employer Plans or PEPs), prospective pooled plan providers are still awaiting additional guidance from the Department of Labor regarding exacting which duties they will be responsible for providing. That guidance is expected to come sometime this summer.
Why they’re not
But there are some downsides to MEPs, according to plan sponsors. The SRI survey found plan sponsors are most cautious about losing administrative control of their retirement plans (42%).
More than a third of plan sponsors say the loss of plan design choices and features, the potential for employee dissatisfaction, and limited investment choices also would be drawbacks of MEPs (see Chart 2 below).
“SRI research shows 83% DC plan sponsors feel a strong sense of responsibility when it comes to helping their employees reach their retirement savings goals, and 80% cite retirement readiness as an important goal for their DC program,” remarked Dupont. “Even for those who are very interested in MEPs, 4 in 10 worry about limiting investment choices for their employees, and a third are concerned their employees might be dissatisfied with a MEP.”
SRI notes while open MEPs are mainly intended to attract small employers without existing retirement plans in place, the study suggests plan sponsors of existing DC plans, even (and especially) larger plans at larger companies, demonstrate significant interest in the possibility of MEP participation.
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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.
