Open MEPs would be game-changer for 401(k) advisers

Advisers could leverage these retirement plans to reduce cost, administration and fiduciary liability for clients, and eventually use them as a branding opportunity

Sep 4, 2018 @ 2:00 pm

By Greg Iacurci

The president inched open multiple employer plans a step closer to reality Friday when he signed an executive order directing government agencies to make it easier for small employers to offer these retirement plans.

If the Labor and Treasury Departments succeed in this endeavor, it would be a game-changer for advisers and the retirement industry, experts said. Open MEPs would help advisers drive down costs, administrative headaches and fiduciary liability for clients, which would encourage more employers to offer retirement benefits to their workers, they said.

"I think it will change how business is done, especially in the small end of the market," said Terrance Power, president and CEO of The Platinum 401k Inc., a third-party administrator. "It's pretty clear this is the direction the Trump administration wants to go."

Multiple employer plans, or MEPs ("meps") as they're commonly called, let employers band together to offer a common retirement plan to employees. "Opening" MEPs would eliminate a current "nexus" requirement and allow unaffiliated employers to join together, rather than limiting MEPs to groups of affiliated employers, like law offices or medical groups.

Expanding access to open MEPs to more employers has several benefits in the industry's eye. Here are three major ones: cost reduction for items such as investment management and record keeping as a result of the pooling of assets; simpler and less-expensive plan administration, since employers wouldn't need to undergo individual 401(k) audits or file their own Form 5500; and a reduction in fiduciary liability, since the employer would no longer technically be "sponsoring" the retirement plan.

According to the Pew Charitable Trusts, roughly a quarter of private-sector workers in the U.S. don't have access to a workplace retirement plan. High costs and lack of administrative capacity are the top two reasons employers don't offer a retirement plan to workers.

"If the MEP providers structure a product within an open MEP concept that really addresses the concerns, they could be on to something," said John Scott, director of retirement savings at Pew. "I think you could see significant gains."

Many experts view President Donald J. Trump's executive order as mainly symbolic, since the Department of Labor is somewhat limited in what it can do around open MEPs. The most the DOL could achieve is likely reversing prior guidance instituting the nexus requirement, experts said.

The biggest impact would come from congressional action. Legislation to implement open MEPs unanimously passed the Senate Finance Committee in 2016 but never went to the full chamber for a vote. The bill, The Retirement Enhancement and Savings Act, was reintroduced this year.

The legislation has a good chance of passing by year-end, Mr. Power said, calling it a "game-changer" for the industry. The hope is that the president's executive order lends more immediacy to the issue, he added.

One of the features of interest to 401(k) advisers is that they would seemingly be allowed to sponsor an open MEP — which they can't do currently without running afoul of prohibited transaction rules.

Mr. Power positions this as "private branding" — for example, Mary Smith, an adviser with a few dozen 401(k) clients, could bundle the clients into the "Mary Smith multiple employer plan" that she sponsors and for which she provides investment management.

"It's no longer a Fidelity, Vanguard or John Hancock plan; it's the adviser's plan and draws them closer to their own client base, and they can set it up any way they want," he said.

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