The Department of Labor’s MEP rule—which makes it easier for small businesses to offer DC plans to their workers through Association Retirement Plans (ARP)—took effect on September 30.
Under the rule, ARPs could be offered by associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide (even if it crosses state lines).
So, is this it? Are the flood gates opened to a slew of solutions that will revolutionize 401k pricing and coverage?
Not quite, said Pentegra Retirement Services’ Pete Swisher who, while bullish on MEPs overall, nonetheless has what he called “a more balanced view based on real-life experiences.”
Widely considered a MEP expert, Swisher, Senior Vice President and National Practice Leader with the White Plains, NY-based Pentegra, has closely followed legislative developments.
“ARPs are different from other types of MEPs, but it’s really just an extension of what’s always been out there, which has always been the ability to do a closed MEP,” Swisher patiently explained at the GRPAA Finnovation Conference in San Diego on Saturday. “It’s been limited to a very tight group because of DOL rules, so that group is now expanded to more associations, and there’s a ton of interest.”
Large associations, small associations, Chambers of Commerce are all now looking at ARPs as a result of the DOL’s September 30 implementation—what Swisher called “a very active conversation.”
As far as how swiftly it will move, “nothing in financial services happens quickly, and ‘fast’ is relative,” he argued.
“Look at it this way; how long does it take for an advisor to sell a 401k? Anywhere from 6 months to 18 months,” Swisher noted. “The ARP rule doesn’t change that. It’s a new way of doing it, but even if you get a MEP in place, somebody has to go sell the employers on moving into the MEP. If the advisor is in the right frame of mind, the MEP is well structured and you’ve got a decent affinity group, there’s no question sales will accelerate, but you’re still talking about what ‘accelerated’ means.”
Comparing the new rule to an ocean wave, something massively powerful but not always visible as it gains momentum, “Is it going to overtake the industry? No. But with 650,000 plans in the U.S. today, it can add another 50,000 to 100,000 or even 200,000 on the coverage side.”
Some plans already in that 650,000 figure will consolidate into MEPs, he concluded, which will have a significant impact on the industry, “and it’s a superior delivery vehicle for the 401k, but it won’t take over the world.”