Multiple Employer Plan Pros and Cons
Multiple employer plan pros and cons are the talks of the town inside the beltway. That’s because two landmark events have happened within the last month that have intensified the Multiple Employer Plan Pros and Cons conversation. One, President Trump issued an executive order that prompted the Department of Labor (DOL) to submit a proposal on multiple employer plans (MEPs) to the Office of Management and Budget (OMB). In addition, Congress is working toward legislation on open MEPs, which would allow unaffiliated employers to band together to offer retirement plan benefits for their employees — a change that’s particularly attractive to the small employer market, where cost savings and the sharing of administrative burdens and fiduciary liability is important. In any case, growing numbers of employers are starting to pay attention to the multiple employer plan discussion.
Journalist and industry expert Christopher Carosa aptly pointed out that the multiple employer plan conversation is heating up in a recent post in BenefitsPro. In that post, Mr. Carosa details what he learned about employers’ views on MEPs from a recent presentation he gave to a business organization, where the membership was made up primarily of small employers. He was asked to explain the, to use his word, “boring” details of MEPs, but without getting too into the weeds.
What Carosa learned is that multiple employer plans remain a mystery very much for employers. They asked good questions, like: “Can my company leave the MEP if things change?” According to Carosa, the answer is yes, but plan design plays a role. Another burning question about MEPs: “Can I keep my current service provider (e.g., recordkeeper, investment adviser, or even investment options)?” Probably not, Carosa writes — as an employer, if you’re going to delegate your fiduciary responsibility, be prepared to delegate the decision-making that goes with it — which means if you join a MEP, you may not be able to keep your current providers and investment menu.
There are benefits to participating in MEPs, however, including lower costs. Many smaller employers don’t offer a retirement plan benefit because of the expense. However, the multiple employer plan offers economies of scale for all of the employers involved by spreading the administrative, compliance testing, and audit costs across all of the participating businesses. Additionally, being part of a multiple employer plan does allow for a reduction of fiduciary risk, along with fiduciary support, as the roles and responsibilities are usually assumed by the MEP sponsor, not the individual employers.
Choosing to join a multiple employer plan should not lull employers into a false sense of security. Being a part of an MEP does not absolve you of your fiduciary liability — the liability is the same as with a stand-alone plan. In Carosa’s words: “… while much is transferred to the MEP plan sponsor, the participating company retains responsibility for the initial movement of money from the company coffers, through the payroll processor, to the retirement plan.”
When considering adopting a multiple employer plan structure, here are some questions to ask:
- How will the MEP impact my current plan?
- Will I be able to establish my own eligibility, vesting, and contribution provisions?
- Will I be required to change existing plan features?
- Is the MEP advisor-friendly? (if applicable)
- How long have the parties been involved with the MEP?
- What are the qualifications and expertise of the parties involved with the MEP?
- Is there an ERISA attorney advising the MEP?
- Is there a proper separation of the roles and ownership structure of the MEP’s plan sponsor, independent fiduciary, and contracted service providers?
The takeaway here is that multiple employer plans are more complex than they may appear. Thus, it’s important for employers to understand the nuances and specifics of how multiple employer plans work, and what their fiduciary roles are in the context of a multiple employer plan arrangement. In other words, it’s important to know what you know about MEPs, but just as important to learn what you don’t currently know — and, then seek the answers.
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