Multiple-employer plans provide a host of new opportunities for plan advisers, provided they know how to best serve this market of tiny employers.
It's no secret that the smallest retirement plans, especially those with less than $5 million in retirement plan assets, face the biggest challenges with respect to fees and service.
Plan sponsors who are dealing with that challenge on a regular basis include professional trade associations and other networks of small employers. Multiple-employer plans pull in a group of small businesses and cover them under one retirement plan, as opposed to having each of those tiny employers purchase its own plan.
“You might have a car dealership that owns four other dealerships, but doesn't have a controlling interest in them,” said Jim Kais, senior vice president at Transamerica Retirement Solutions. “The principal might say, 'Instead of having five retirement plans, I can qualify for one MEP plan and consolidate.'”
Opportunities await advisers who have the knowledge and the right team to work with MEPs, but there are risks that await the unwary.
AN INTRO TO MEPS
First, advisers need to know the distinction between a multiple-employer plan and a multiemployer plan, as the two have sharp differences. Per the IRS, multiple-employer plans are made up of at least two employers who are not part of a commonly controlled business or affiliated service group; the employers are not part of the same company and are distinct from one another. Multiemployer plans, on the other hand,are tied to collective bargaining agreements and require more than one employer to contribute to them.
The former — multiple-employer plans — will be the focal point here.
Among MEPs, there's an even greater degree of distinction: closed and open. Closed MEPs are made up of employers who share a commonality. Open MEPs group together employers who aren't related to each other at all; they might be in different disciplines.
Advisers who want to get into MEPs need to be aware of some developments going on at the Labor Department over the last few years. Historically, there's been conjecture over how the agency defines a MEP and the administrative burden that goes with it.
This 2012 advisory opinion details where the DOL stands on open MEPs. This structure is allowed, but each employer must file its own Form 5500 each year with the Labor Department, according to Bradford Campbell, an attorney at Drinker Biddle & Reath.
“The idea that a lot of MEP proponents were trying to achieve in 2012 is that they have one retirement plan and one Form 5500, but many employers,” Mr. Campbell said. In reality, an open MEP is now administered as one group, but each of the plans that comprise it is considered an individual plan under the Employee Retirement Income Security Act.
RISE OF ADMINISTRATION SERVICES
As MEPs have become more popular, services that allow for the outsourcing of plan administration duties have also popped up. Advisers working with MEPs may be interested in teaming with a service provider who will take on fiduciary plan administration duties under section 3(16) of ERISA.
"There's a lot of interest in the industry on outsourcing plan administration duties and doing it in the context of 3(16),” Mr. Kais said. “We're seeing specialized third-party administrators serving in 3(16), approving certain plan transactions and signing off on Form 5500.”
But be aware that you can never truly outsource fiduciary duty; plan sponsors and fiduciary advisers are still responsible for prudent selection of the service provider. In this case, advisers need to know exactly which duties will the provider take on as a fiduciary under Section 3(16), according to Gerald Wernette, director of retirement plan services at Rehmann Financial.
“For 3(16), you have to ask a lot of questions and know what to ask,” he said. “If you look at the actions the 3(16) administrator has to perform, it can be anywhere from 150 to 212 functions for the plan administration. You want an administrator who is willing to perform as many of those functions as they can outside of the functions that have to be done by the participating plan sponsor."
GETTING STARTED WITH MEPs
Plan advisers might be dazzled by the idea of adding dozens of new clients in a MEP, but they need to make sure they have the energy to track the plans and the service providers themselves.
Brady Dall, senior vice president at 401K Advisors Intermountain, works with closed MEPs, where the employers are related in some way. “
With his closed MEP business, Mr. Dall orchestrates the interaction between the professional employer organization — which small employers use to outsource payroll and human resources functions — and the service provider or record keeper.
In other scenarios, if the employers' payroll and HR functions aren't centralized, then Mr. Dall will need to coordinate with a third-party administrator who will ensure that the payroll contributions made to the MEP are arriving in a timely manner. It's complicated, considering that a group of employers in a MEP may pay their workers on different schedules.
Mr. Dall's firm, meanwhile, charges an overall asset-based fee for the work it does in investment selection, plan design, educational meetings and corralling the service providers in a given MEP.
There are compromises. Workers don't get hands-on interaction with advisers in this case, but they do get access to a retirement plan that otherwise might have been difficult for the employer to afford alone.
“Advisers need to make sure they have the bandwidth,” Mr. Dall said. “It sounds exciting to think about working with 50 new employers, but it can be a drain on your resources and take the focus off your profitable clients.”