Passage last week of the Secure Act by the House of Representatives gives financial advisors a cornucopia of investment, marketing and product opportunities, particularly in the area of multiemployer retirement plans (MEPs).

To look behind the curtain of the legislation and its MEPs provisions, Financial Advisor magazine checked in with Nuveen’s head of defined contribution strategy, Christine Stokes, who said she is eagerly anticipating product development that the bill encourages. Nuveen is the investment management arm of defined-contribution-plan giant TIAA Cref, which has $520 billion in plan assets.

“Specifically, one of the things we are talking about is watching the open MEPS [multiemployer plan] market unfold,” said Stokes. TIAA offers closed MEP products currently.

These are some of the provisions in the Secure Act that would allow companies to create open MEPs and encourage retirement savings:

• Employers would be allowed to join a pooled arrangement that permits, for the first time, different types of employers to collectively offer a plan to their employees (open MEPs).
• Automatic enrollment credit would be provided for small employers. Auto enrollment has been shown to increase employee participation and higher retirement savings.
• The prohibition on contributions to a traditional IRA by an individual who has reached age 70½ would be repealed. This accounts for increases in life expectancy.
• The law would provide the portability of lifetime income options, which will permit participants to preserve their lifetime income investments and avoid surrender charges and fees.

“Right now, really only closed MEPs are permitted in the defined-contribution market because employers need to be in the same industry (have commonality). There are few providers and limited adoption of MEPs because there are so many requirements,” Stokes said.

The Secure Act would change that. Allowing businesses that don’t share commonality to join a MEP,  and removing the Department of Labor’s “bad apple” rule, which holds all employers in a MEP liable for the regulatory and financial failings of each employer in the plan, should incentivize businesses to begin looking at this product, she added.

A recent Empower Institute study found that 66 percent of plan sponsors that do not offer a retirement plan are likely to consider an open MEP.

When these small businesses were asked to select the single most important MEP attribute from a list of attributes, they prioritized the variety of plan and fund options (29 percent), and lower costs for both the organization (19 percent) and employees (14 percent).

The survey also revealed that small businesses generally understand the importance of offering a retirement plan, with nearly two-thirds of respondents (63 percent) selecting “it’s the right thing to do” as their top rationale for offering or wanting to offer a plan to their employees. This response edged out business objectives such as employee retention and attracting talent (59 percent).

Fees will be one of the largest incentives to open MEPs, she said. “If the fee is somewhat alleviated or mitigated for small plan sponsor, that will be a huge draw for some businesses,” Stokes said.

Limiting business owners’ fiduciary liability by removing the “bad apple” rule will also make open MEPS more attractive.

Still, she said, both business owners and financial advisors need to look carefully at plans. “When you take a closer look, you see you can never fully offload all fiduciary responsibility,” Stokes said.

While smaller businesses that offer an open MEPs “won’t have the responsibility for choosing underlying investments, they would still be responsible for choosing the MEPs and have an ongoing responsibility for evaluating the provider,” she said.

Total fees will also need to be considered when selecting an open MEPs plan. “It may not always be less expensive when compared with other offerings,” Stokes said.

“You do ideally hope that the smaller plan sponsor will be able to achieve the benefit of an economy of scale that larger plans with more assets currently enjoy,” she said. 

Open MEPs are most likely to succeed if they offer a variety of plan and fund options, along with lower costs than small businesses are paying now, the Empower study found.

The way MEPs are designed with regard to investment control and plan features will also be major factor in whether or not the plans will take off, according to Stokes.

“Some plan sponsors may want to have more control over their underlying investments and relinquishing that may not be the most appealing when they see what their options are with an open MEP,” Stokes said. “Level of call center service support, portal interface, printed educational materials and financial wellness tools—all of those things are the next level of service that some employers may want and not be able to access with a MEP."

Passing a senate counterpart to the Secure Act “remains a top priority,” said Senate Finance Committee Chairman Chuck Grassley, R-Iowa.