Multiple employer retirement plans need clear organizational strategy for compliance
Multiple employer retirement plans have re-emerged for small businesses, trade associations and other institutions as a solution for providing quality retirement plan benefits at a competitive price.
Under a MEP, which allows two or more unrelated employers to sponsor a retirement plan as one entity, participating organizations are able to reduce the cost of operating and maintaining a 401(k) or 403(b) plan by pooling resources and can therefore present stronger benefits to employees at a lower cost than before using the MEP. Previously, open MEPs permitted unrelated employers and industries to aggregate plans. Now, closed MEPs need more strategy, since recent regulations require organizations to share common ground in order to participate.
Typically, participating entities are businesses or institutions that are members of a trade association or similar group that provide similar services or operate in the same industry. These plans are becoming more common in many industries as well as with smaller universities and colleges.
A closed MEP is ideal for any organization or trade association with the potential to aggregate more than $50 million in plan assets. At that size, when an individual employer adopts a 401(k) or 403(b) plan, the MEP is responsible for all administrative, recordkeeping, legal and most fiduciary responsibilities. The result is a large amount of paperwork and annual legal and financial responsibilities are now outsourced to a third party. The MEP is now required to file the IRS Form 5500. They will also form a fiduciary committee and have a CPA firm audit the plan, which alone may save an employer from $8,000-$15,000 annually.
Alternatively, under the umbrella of a MEP, participating employers are relieved of these operational and financial burdens, but receive all the same benefits of their own retirement benefits packages. Because multiple companies benefit from the same plan umbrella, each contributes to the plans’ maintenance. Usually an insurance company will operate as the record-keeper with a TPA firm as the plan administrator. Together, they will bear responsibility for the legal and financial maintenance of the plan. Some insurance companies will act as both TPA and record-keeper as long as the total assets under management is large enough.
Additionally, the higher volume of participants lends power to the group overall. With more assets and a higher dollar value, MEPs may enjoy lower fees and better benefits than individual plans. As the industry becomes more transparent about fees and costs, having lower fees is extremely important.
MEPs generally come with few restrictions on the number of plan investments, so there is typically enough variety for employees to choose from. As members of a MEP, employers are still able to customize the plan they present to employees
A great example is a MEP for a group of small colleges and universities in any state in the country. If the state has a trade association of universities and colleges and wanted to provide a benefit to their member universities and colleges that would offer a MEP with:
- Lower fees
- Stronger choices for participants
- Reduce fiduciary exposure for the employer
- Plan audits handled by the MEP and not the individual employer
- The MEP filing IRS Form 5500
MEPs are an increasingly popular option for associations and networks that want less fiduciary responsibility and plan maintenance headaches, but hope to increase employee satisfaction and retention. Educate yourself about the trend and discuss it with clients and prospects before someone else does. Once organizations understand the potential benefits, getting them to the negotiating table is relatively easy.