Multiple Employer Plans make sense
Why we are fans and you should be too!
Multiple employer plans are a special type of retirement plan that allow businesses to pool their purchasing power together to access better benefits, bigger services, and less liability. Since you can outsource most of the day to day operational tasks, they are also a lot less work!
Easier Adoption Process
When you join an existing MEP or PEP, getting started is easy because you are boarding a well-oiled machine. The infrastructure and governance of the plan is already in place. There’s a plan document, trust for plan assets, and investment menu already set up. The plan sponsor or PPP has already selected and carefully screened all the key players including the plan administrator, investment advisor, custodian, TPA and recordkeeper. You can just concentrate on individualizing the plan to meet your company’s objectives by selecting from a wide range of options on eligibility, employer contributions, vesting schedules, etc.
With your MEP or PEP, you are also able to outsource many of the every day operational chores of running a retirement plan. For instance, in most plans, you won't need to approve distributions and loans, determine required minimum distributions, qualify domestic relations orders, or prepare and distribute required plan notices. Off-loading these tasks not only reduces your work load but also reduces your liability and helps ensure that these decisions are being made by people who know the retirement plan rules inside and out.
As an adopting employer of a MEP or PEP, you are also no longer required to file your own Form 5500 or do your own audit if your plan is over 100 participants – that’s a huge benefit! Instead, the MEP or PEP files a single 5500 for the whole plan and takes care of the audit for the entire group. Another item off your to-do list!
When you choose to participate in a MEP or PEP, you make a fiduciary decision that the plan is a good choice for your company and employees. And while that is a very important responsibility, all the other fiduciary choices and decisions – and the liability that goes with them – are not yours. In this increasingly litigious environment, it’s really smart business to insulate yourself from selecting service providers, evaluating their performance, monitoring investments, and ensuring that the daily operations of the plan conform to best practices and the plan document. Your MEP or PEP is not just a great benefit for your employees, it is also a risk management tool for you and your company.
Your costs will also often be less within a MEP or PEP compared to a single employer plan when you compare apples to apples. That means less costs for you and greater savings opportunities for your employees. Pooling plans together creates the potential for economies of scale and those efficiencies create the potential for cost savings. For instance, plans with more assets can get into better share classes because they meet the fund family’s minimum requirements. Trading platforms also often base their pricing on total plan size, providing pricing breaks as the plan gets bigger. Investment managers also find a lot of efficiencies when they can adopt the same investment strategy across a whole group of employers and TPAs benefit from a consolidated Form 5500 and a unified plan administration procedure. Together, these efficiencies can mean less work and those savings can be passed on to you!
Within a MEP or a PEP, you can get better service and better pricing and less work and less liability at the same time. There really is no catch!
Retain Your Plan Design Flexibility
Even though you are part of a bigger plan, that doesn’t mean that you lose your flexibility. While MEPs and PEPs create an umbrella structure, under the umbrella each company can do their own thing. The law in fact requires that each adopting employer is treated separately for things like employer contributions, testing, and coverage. That means that you still choose the right plan for you and your employees. Immediate eligibility or a more extended waiting period? Automatic enrollment or a more traditional enrollment process? Matching contributions or maybe just a deferral-only plan for now? You choose.
No Additional Risk
The so-called “bad apple rule” has historically been a stumbling block for companies interested in taking advantage of a multiple employer plan arrangement. Although remote, the risk was that the bad actions of one participating employer would spoil the group and potentially disqualify the entire plan. While this rarely if ever happened in practice, the regulations made it a possibility and this concern prevented some employers from taking advantage of a multiple employer option. Not so anymore. Recent regulatory changes provide an explicit process to get rid of “bad apples” so that they won’t taint the plan.
Bottom line? Choosing to participate in a multiple employer arrangement is a great option for your company!