What are Multiple Employer Plans (MEPs)?

Multiple Employer Plans (MEPs) have been around for decades, yet, many people have never heard of this type of retirement plan.  A multiple employer plan is a plan maintained by two or more unrelated employers.  MEPs are often coordinated via a trade or business association.  For example, an MEP could be sponsored by a state dental association or a group of companies spread across the U.S. that share a common nexus, such as auto part manufacturers.

Why consider forming an MEP?

Let’s expand upon the concept of an auto manufacturer MEP.  Taking advantage of economies of scale, each auto manufacturer that adopts into the MEP shares in the benefits of its collective structure.  By pooling their investments, administration and governance structure, the MEP members could garner greater efficiencies and purchasing power. MEPs are formed to minimize costs while adding value-added services, typically offered at a premium to stand-alone retirement plans.  Just as important, plan sponsors can often minimize their fiduciary liability by participating in an MEP.

What are some of the main benefits of MEPs?

Plan Costs – By participating in an MEP, plan sponsors can potentially benefit from a reduction in:

  • Staff time and labor used to administer the plan
  • Recordkeeping costs
  • Plan audit costs
  • Investment expenses
  • Form 5500 costs
  • Plan amendment and restatement fees

Administration – Employers can outsource many of the responsibilities associated with plan administration to the MEP sponsor.  Some of these duties include:

  • Approving loans and hardship withdrawals
  • Approving distributions and qualified domestic relations orders (QDROs)
  • Plan document and operational compliance
  • Form 5500 administration
  • Plan audit, when applicable

Investments – Employers can benefit from the aggregate plan`s assets and by being able to outsource investment management responsibilities.  Some of the benefits include:

  • Investment menu selection
  • Ongoing investment monitoring
  • Access to institutionally priced investment options

Governance – Employers can outsource certain plan sponsor roles to the MEP

  • The MEP is structured to assume an administrative fiduciary role
  • The MEP is structured to assume the investment fiduciary role
  • The member company shifts its Fiduciary liability to the MEP

Though you may not have heard of an MEP, they are quite common in the corporate 401k space.  They are also gaining popularity with legislators, who want to provide coverage for small businesses (regardless of a common nexus) that are not offering employees any type of vehicle for retirement savings. These are called “open” MEPs and a timely reference is the Retirement Enhancement Security Act (RESA) of 2018. Further, we are seeing higher education organizations create MEPs that are structured as a 403(b) plan rather than a 401(k).  For example, 14 independent colleges in Virginia recently decided to create their own MEP to share in the outsourcing of education and advice, the monitoring of investments and fees, administration and fiduciary responsibilities.

MEPs come in all shapes and sizes and even offer sponsors flexibility with different plan designs. However, MEPs must adhere to certain plan qualification rules under IRC 401(a), such as with vesting, eligibility and distribution rules.  In other words, some of the rules may apply to the aggregate plan while others to the adopting plan sponsor.  Here is additional insight.

Hopefully, you now know a little more about Multiple Employer Plans and don’t confuse them with other plan types.  Quite often, people mistakenly refer to them as Multiemployer Plans, which are those created for unrelated companies covered under a collective bargaining agreement.  But, that is a whole other story.

For further information, please contact us at info@www.thirtynorth.com