Building on the rising interest in fiduciary risk outsourcing, the 401(k) market experienced a renewed focus on multiple employer plans (MEPs) in 2010. Long utilized as the underlying plan structure for professional employer organization (employee leasing) plans, MEPs have expanded to include unrelated employers seeking a streamlined approach to plan oversight.
A multiple employer plan (not to be confused with a multiemployer, or Taft Hartley, plan) is a defined contribution retirement plan established by one plan sponsor which is then adopted by one or more participating employers. The adopting employers may have a common link, such as an industry association, or may have no shared connection at all beyond that of their participation in the same plan.
Outsourcing The Plan Sponsor Role
The key to understanding the impact of an MEP is this: When an employer merges their current single employer plan into a properly structured multiple employer plan, they cease to be the sponsor of the plan. That central role transfers to the MEP's plan sponsor, and the roles of ERISA 3(16) plan administrator and plan trustee generally move along with it.
What is the impact of transferring the plan sponsor role? Plenty. Employers adopting a sound MEP eliminate their plan audit and Form 5500 filings, simplify plan operations and achieve a profound reduction in fiduciary liabilities. In doing so, they should also consider that they are also giving up some of their independence (and liability) in choosing their fund menu.
The "Platinum Standard" In Fiduciary Protection
How extensive is the relief of fiduciary responsibilities? In an August 6, 2009 article in Morningstar Advisor, W. Scott Simon referred to joining a multiple employer plan as, "...the platinum standard of delegation of fiduciary responsibility (and liability) by a plan sponsor." Some believe the fiduciary relief to be total (see the Scott Simon interview with Jeff Mamorsky, J.D., LL.M. in the November 4, 2010 issue of Morningstar Advisor). Others believe that an employer retains some residual fiduciary liability for the selection and monitoring of the MEP. From either perspective, I suggest that multiple employer plans offer the most significant mitigation of fiduciary risk available today.
In most operational respects, an MEP functions as a single plan and the MEP's sponsor handles the plan-level responsibilities. The plan audit, Form 5500 and regulatory compliance are all handled at the MEP level and no longer by the adopting employer. "The new breed of multiple employer plans recently hitting the marketplace truly removes an enormous amount of responsibility and out-of-pocket expense from the employer," states Terrance Power, president of American Pension Services Inc., a third-party retirement plan administration firm located in Clearwater, Fla. "We've been associated with multiple employer plan clients for over 20 years. The recent availability to extend participation to the 'traditional single employer plan' market, primarily due to technological interface enhancements to streamline plan administration and compliance, will change the 401(k) market permanently. These were the core components behind our own multi-provider MEP program that was rolled out late last year, The Platinum 401k [www.ThePlatinum401k.com]."
The amount of flexibility in plan design features and investment varies among MEPs. The fund menu generally is the same for all adopters, because giving discretion to individual employers would transfer back some of the investment oversight, thereby weakening the fiduciary benefits of the plan. Plan features, however, are a different story. While some MEPs limit adopters to Safe Harbor or automatic enrollment plan structures, many MEPs have written their master plan to accommodate a wide variety of provisions, resulting in little or no takeaways for employers merging into the plan. It's important to note that non-discrimination testing remains at the adopter level and that these compliance services will generally be handled by the MEP as part of its overall plan administration package.
Opportunity For Advisors
Is the emergence of these plans bad news for advisors or does it present an opportunity? It depends on how they approach it.
MEPs assume much of the investment monitoring and fiduciary processes. While this understandably is perceived as a negative by some, most advisors offer a much broader value proposition. Some believe that the trend toward increased commoditization of investment monitoring (Mesirow, Morningstar, and 3(38) outsourcing) makes it unwise to base too much of their future value proposition on fund monitoring anyway.
The opportunities for advisors come from the dramatic benefits offered by MEPs: