As Fiduciary Concerns Grow, Multiple Employer Plans Look Compelling to Some Companies

Three main reasons lead some employers to join a multiple employer plan (MEP), says Jim Kais, Vice President and Director of Institutional Sales and Special Markets at Transamerica Retirement Services.

First, these employers may not want to assume full fiduciary responsibility or do not have the expertise to assume it fully. “They want to mitigate that risk,” he says. Second, joining an MEP—not to be confused with the multiemployer plans often seen in unionized settings—means a large offload of administrative duties for adopting employers. In these challenging times, many want to focus their time and energy on top-line revenue generation, he says. Third, they want participants and themselves to get the leveraged buying power of a larger plan than these employers could have on their own.

MEPs—subject to Internal Revenue Code section 413(c) and defined as a single retirement plan maintained by more than one employer—have been around for many years. Their use picked up when, in 2002, the IRS issued Revenue Procedure 2002-21, ruling that defined contribution plans sponsored by professional employer organizations (PEOs) would be treated as MEPs. More recently, as fiduciary and fee concerns increased, and employers’ time demands in other areas grew, multiple employer plans have started getting more attention. These days, offering employees a retirement-savings option while not serving as a plan sponsor looks intriguing to some. Here are five things employers should know about MEPs:

1. MEPs attract mostly small employers.  

AUL Retirement Services mostly sees employers with less than $5 million in plan assets and around 100 employees drawn to multiple employer plans. Says Peter Welsh, Vice President of Product and Marketing Strategy, “For a relatively modest cost, they can offload a lot of the fiduciary responsibility.

“The majority are small employers who are just starting to understand the services they have received from their registered rep in particular,” Welsh continue. “They thought they were receiving investment advice and the registered rep was serving in a fiduciary capacity, and they were not. People are saying, ‘I thought I was getting something, but maybe I was not.’”

However, even amid heightened fiduciary worries, the MEP concept “is not a silver bullet for every plan sponsor,” Kais says. “Larger plan sponsors want to maintain all the flexibility, and there are times when the plan design of an MEP does not fit with that company.” Most of these plans provide employers some flexibility in plan-design factors such as establishing match levels, vesting, and eligibility criteria.

These plans usually have one investment menu, since having potentially hundreds of investment lineups in an MEP would pose a lot of pragmatic challenges, Kais says. “You usually do not see employer stock, illiquid investments, or self-directed brokerage,” he says. “From a prudence perspective, you want to make sure you are protecting employees.”

Whether an MEP makes sense “is a matter of how involved they want to be,” says Michael Montgomery, Managing Director of Montgomery Retirement Plan Advisors in Tampa, Florida. “There are employers that are actively engaged in the fiduciary process, that very much want to be in control of investment monitoring and fiduciary decisions, but many employers do not like the process of staying on top of the funds.” Read More…