MEPs – Why many Employers are Adopting

401(k) Corner

MEP Overview

MEPs, or Multiple Employer Plans, are a way for employers to pool their 401(k) plan with many other companies.  This allows the employer to outsource most of the Plan Sponsor, administrative and fiduciary duties of a 401(k).  MEPs have been around for many years but only recently have we seen a shift in employers adopting this 401(k) platform. The benefits of a MEP over traditional in-house 401(k)s can be quite compelling for the right company. They will:

• Eliminate the need for a plan audit
• Streamline plan responsibilities
• Fulfill fiduciary duties

Because a MEP is the aggregation of many smaller plans, much of the cost and fiduciary liability can be centralized in the MEP entity, which in turn, relieves the burden to your business! This is because the MEP sponsor is assuming the roles of the plan sponsor, ERISA 3(16) plan administrator and trustee from the adopting employers.  This delegation is what Morningstar describes as the “Platinum Standard” of delegation and fiduciary outsourcing.

Is MEP a Silver Bullet?

So, how do you know if you’re the right candidate for a MEP?  It’s our job to clarify and identify various solutions that are tailored to your business.  MEPs are ideal for some businesses but not ideal for most.  Here are a few scenarios that illustrate if you could benefit from adopting a MEP plan:

• Does the thought of ensuring full fiduciary compliance for your retirement plan scare you?  If so, MEPs are a great way to offload most of your fiduciary responsibility to a third party.
• Does the idea of running a retirement plan overwhelm you and negatively affect your ability to run the business?  Employee benefit programs should not be so obtrusive that you can’t properly run your business.  If so, MEPs are an excellent way to reduce the administrative hassle.
• Is your plan audit costing the company too much time and money?  With Multiple Employer Plans, the sponsoring entity takes on the audit and saves you time and money (audits can start at $5000 and quickly go up).
• Do you dislike choosing and monitoring investments for your plan menu?  If so, this is a way to pass off that task to the sponsoring entity.  Often, there is only one fund line-up available through MEPs.
• Are you sloppy in documenting your processes and maintaining a fiduciary folder?  If you and your Investment Advisor or Broker is not managing your fiduciary responsibilities, MEPs allow you to discharge most administrative and fiduciary responsibilities.
• Are you comfortable with oversight and compliance of your plan?  If there is a level of angst, you may consider using a third party to manage the plan.  Multiple Employer Plans display excellence in this area because they are primarily in the business of managing many plans.

Of course the opposite is true when you turn the benefits of MEPs on their head.  If you are a business owner that likes a lot of control in the process, this is likely not a good solution for you.  With all the benefits described above, you have to realize that in exchange, you’re giving up “control” and that could be problematic for some.  Here are some examples of types of control you relinquish and/or pitfalls in adopting a Multiple Employer Plan:

• Ability to select investments in the fund menu.  The sponsoring entity will often have just one investment line-up that is used by all adopting employers.
• If you illiquid investments, life insurance or self-directed brokerage accounts in your current menu, transferring to a MEP is difficult.
• If compliance has been a problem for your plan, a good MEP is likely going to block you from membership.  One bad participating employer could jeopardize the entire MEP and therefore, they are diligent in their scrutiny of new applicants.
• If you already have an Investment Advisor who is sharing in the fiduciary responsibility and assisting in developing and maintaining well documented processes, the MEP will bring little benefit.

As with most solutions, there is no “one size fits all”.  However, Multiple Employer Plans have a unique ability to systemize and optimize 401(k) administration and ultimately save employers time, money and reduce their liability.  If you have an interest in learning more about MEPs and determining whether they are a good fit for your company, click here to schedule a complimentary consultation with one of our advisors.