Retirement plans are largely absent from small businesses, but a bipartisan push to make multiple-employer plans (MEPs) more accessible may soon turn this around. For financial advisors, that can be a new path into the often intimidating retirement plan market and a good way to add value for small-business owner clients.
MEPs—which let two or more employers pool their purchasing power, share a fiduciary and reduce administrative hassles—could likely be part of any retirement-related tax bill this year, says John “Jamie” Kalamarides, head of institutional investment solutions at Prudential Retirement.
And because Democrats and Republicans are providing strong support and willing to work together on this issue, “regardless of who wins the White House, it can move forward,” says Kalamarides, who has testified before Congress on how and why to expand the use of these plans among more small businesses.
Current tax laws and ERISA rules largely limit MEP sponsorship to things like trade associations. Such plans are considered “closed,” whereas “open” MEPs are not restricted to professional groups. A 2015 survey from the National Association of Professional Employer Organizations found 83.8% of its 300 members use MEPs for retirement.
“We see enormous demand for these sorts of plans if Congress would make small changes to the law,” Kalamarides says.
“This has the power to transform the industry.” He adds that the new DOL fiduciary rule—which provides clarification for small retirement plans, and will allow them to pool their purchasing power and name an independent fiduciary—could also increase demand for MEPs.
If MEPs were more widely available, the number of people participating in small-business retirement plans could double, says Kalamarides, and that could give financial advisors the scale they need to serve this market more effectively
and efficiently.
Access to workplace retirement plans is unavailable to half of the 55 million people working for the United States’ 5.6 million small businesses with fewer than 100 employees, he says. MEPs could serve them and, in particular, women and people of color who work at a greater proportion in small businesses than white males do, he adds.
Helping workers achieve greater financial security is “tremendous public policy,” says Kalamarides, “and also a really neat market opportunity for financial advisors.”
Troy, Mich.-based Rehmann Financial, which provides wealth advisory, accounting and other financial services to small and midsize businesses, launched an open MEP in January 2016. About 10 employers have joined the plan, known as AutoMEP, and “it’s our intention to add many more,” says Gerald Wernette, principal and director of retirement plan consulting for Rehmann Retirement Builders, the retirement plan services group within Rehmann Financial.
He thinks AutoMEP—which offers 94 different investment options including four sets of target-date funds—will appeal to plans with up to $5 million in assets. He figures the average plan will have $1.5 million or less in assets and five to 50 participants.