Why MEPs will Dominate 401k Small Plan Market
In my weekly video blog, I discuss why I think multiple employer plans or MEPs will dominate the small plan 401k market in the next three to five years. With experts predicting that needed federal legislation opening up opportunities for unaffiliated companies to join a MEP will be enacted, market forces will propel these plans quickly.
Most companies would like to offer their employees the ability to save for retirement at work but concerns about costs and work as well as fiduciary liability and work hold back some. Employees are beginning to expect their company to offer a retirement plan where they are 15 times more likely to save than on their own. Over half the states have or in the process of requiring companies to offer a payroll deducted savings plans. Like healthcare, providing access to retirement plans at work is becoming a major political agenda.
MEPs solve many of the issues for smaller companies who have limited resources to start and manage a 401k plan. By joining with other companies to create buying power as well as outsourcing many of the fiduciary responsibilities and work, a MEP offers also provides access to high level advisors who may not be interested in working with smaller employers.
Though state auto IRA plans are a good first step, the investments are limited and companies cannot provide a match. Employers are much more likely to buy a retirement plan from mutual fund or insurance companies that states or the federal government according to a Pew study. Additionally, there’s a strong public policy sentiment for the private sector to manage retirement plans rather than the government.
So if federal legislation opens up opportunities for unaffiliated companies to join a MEP as many expect, we believe it could result in a flood of smaller employers required by state law to provide some sort of retirement saving option at work to join private MEPs that offer greater investment and plan design flexibility than state auto IRA programs.
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