Streamlining of plan operations. In addition to the audit elimination, MEP adopting employers no longer file a Form 5500, maintain a fidelity bond, or shoulder the responsibility for 408(b)(2) compliance. These are handled by the plan sponsor that is associated with the MEP, not the adopting employer. For some employers, this benefit is inconsequential. For others, the desire to let outside experts run the plan can be more important than either the audit relief or fiduciary risk mitigation.
MEPs are not a good fit for every employer. Some plan sponsors already are mitigating their fiduciary exposure through a comprehensive, well-documented fiduciary process. Others don’t consider the cost or effort of an annual audit to be significant enough to justify making a change. Still others take satisfaction in staying engaged in plan oversight and fund monitoring. Simply put, if the advantages of an MEP appear to be solving a problem you don’t have, this approach is not for you.
An employer also should consider the potential limitations inherent in most MEPs. These may include the following:
• The adopting employer does not select its own fund menu. For many, this is a relief. Others want to have more involvement in investment decisions and consider this a takeaway.
• Loss of current providers. Though some MEPs offer a degree of flexibility, most are tied to a single recordkeeper or third-party administrator, so you will most likely have to leave behind your current providers to enjoy the benefits of adopting an MEP.
• “Bad Apple” impact. Under ERISA, one adopting employer with serious compliance violations could cause the entire MEP to be disqualified, though a more likely scenario is that corrective measures will be taken. In the 20-plus years that I’ve been associated with Multiple Employer Plan clients, I’ve yet to see this occur. It is important that employers confirm the availability of a “disgorgement provision” in any MEP that they may be considering. This important plan design feature allows the MEP to quickly eject and thereby isolate any noncompliant adopter from the plan.
If these features are appealing and the limitations are acceptable, you may want to look further into the Multiple Employer Plan approach as a solution to your company’s retirement plan strategy.
I’ve been told by plan sponsors that they decided to join an MEP because these programs are handled the same way as their other employee benefit programs, where the benefit providers handle all the details. For example, while an employer could, at least in theory, negotiate with doctors, hospitals, MRI service providers, pharmacies, etc., for their employees’ medical coverage, most find it easier to outsource these micro-managed decisions to a third party—in that case, a health insurance provider that offers a group health-care policy.
There is a trade-off in control, options, etc., but there also is comfort in knowing that there are professionals at the helm and that they have a vested interest in making sure that their employees are taken care of in accordance with the terms of the arrangement.
Plan sponsors and their advisers will, of course, need to determine on a case-by-case basis whether these programs are a “fit” for their plans and their plan participants.
American Pension Services, Inc., is an independent third-party retirement plan administration firm located in Clearwater, Florida. APS handles the compliance and testing associated with qualified retirement plans (primarily 401(k) plans) for small to medium-size employers, as well as for numerous Professional Employer Organizations (PEOs) located across the country.