Possibility of Open MEPs Comes With Questions

While many proponents of the Setting Every Community Up for Retirement Enhancement (SECURE) Act are calling open multiple employer plans (MEPs) a game changer for the retirement plan industry, MassMutual has just issued a white paper detailing what employers might want to consider before joining an open MEP.

Certainly, the legislation would help the nearly 40 million Americans employed by companies with fewer than 100 employees that do not offer a retirement plan, MassMutual says in its report, “Open Multiple Employer Plans: What Open MEPs May Mean for Your Business.” Fifty-three percent of businesses with fewer than 50 employees do not offer a retirement plan.

A recent Nationwide survey of business owners with 500 or fewer employees found that 59% think the SECURE Act would have a positive impact on their ability to offer a 401(k) plan. Eighty-four percent think it would make it easier for them to offer a 401(k) plan.

Eighty-eight percent think offering a 401(k) plan provides both their businesses and their employees tax advantages, and 88% think it helps them recruit top talent. Just slightly less, 86%, think it helps with employee retention.

“Open MEPs would streamline plan administration and fiduciary oversight for sponsors,” Caroline Boyd, head of strategy for MassMutual’s Workplace Solutions, tells PLANSPONSOR. “One of the biggest benefits of open MEPs for an employer is that they can reduce their liability depending on which model they choose—3(38) or 3(21) fiduciary oversight and/or 3(16) plan administration.”

Boyd reminds sponsors that open MEPs do not absolve them completely of fiduciary responsibilities. “One of the myths about open MEPs is that you can shift all of your fiduciary liability to the plan provider,” Boyd says. “But it’s really a shared fiduciary liability. Employers are still going to be responsible for getting the right payroll information to the sponsor and for handling distributions, loans and hardship withdrawals.”

This is why MassMutual recommends sponsors entering an open MEP hire an experienced third-party administrator to handle 3(16) responsibilities, Boyd says.

In addition, MassMutual says in its white paper, “Open MEPs are likely to come in many ‘models,’ as plan providers create their own version of a multiple employer plan. Pricing will depend on the size of the plan, its design and the level of services provided.”

Further, since open MEPs will join together dozens of businesses from disparate industries, they could end up being complicated to manage and instead of lowering plan administration costs, they could increase them, Boyd says. One estimate says they will increase costs by four basis points, she notes.

MassMutual warns that the details of how open MEPs will work has yet to be determined: “Proponents sometimes describe Open MEPs as an easy-to-use, low-cost, turnkey solution for smaller employers who have been traditionally underserved by the retirement plan market. In our view, it is too soon to gauge how well open MEPs will deliver on all aspects of this promise.

“For starters, until the SECURE Act is signed into law, the DOL [Department of Labor] issues regulations and guidance, and retirement plan providers begin creating their own open MEP models, there is no way to know the specifics of how open MEPs will operate, the degree to which they will actually offer fiduciary and administrative relief, and whether they will provide the cost savings that some are suggesting they will,” MassMutual continues.

Indeed, Tom Reese, an investment adviser with Conrad Siegel, says the SECURE Act does not make it clear as to how much fiduciary responsibility will shift to a third party.