“Multiple” ChoiceMultiple Employer Pl<strong>an</strong>s—<strong>an</strong> enticing alternative for pl<strong>an</strong> sponsorsTerr<strong>an</strong>ce PowerCFP, QPA, ERPA, AIFA, APR, CLU, ChFCPresidentAmeric<strong>an</strong> Pension Services, Inc.AN INTRIGUING new use of a long-establishedconcept is catching the attention ofsmall to mid-size pl<strong>an</strong> sponsors seekinga way to simplify 401(k) pl<strong>an</strong> oversight:Multiple Employer Pl<strong>an</strong>s (MEPs). Bymerging their pl<strong>an</strong> into a properly structuredMEP, <strong>employers</strong> cease to be a pl<strong>an</strong>sponsor <strong>an</strong>d effectively tr<strong>an</strong>sfer m<strong>an</strong>y ofthe responsibilities <strong>an</strong>d liabilities associatedwith being a named fiduciary to theMEP.The MEP concept is exploding in popularity.Established under ERISA 413(c),MEPs historically have been used bycomp<strong>an</strong>ies that share a common industryor payroll provider, primarily associationpl<strong>an</strong>s <strong>an</strong>d professional employer org<strong>an</strong>izations(employee leasing). However,as interest in outsourced fiduciary solutionshas grown in recent years, a newgeneration of “<strong>open</strong>” MEPs for unrelatedcomp<strong>an</strong>ies has sprung up. While MEPsc<strong>an</strong> deliver tremendous benefit to m<strong>an</strong>ypl<strong>an</strong> sponsors, <strong>an</strong> MEP is a solution insearch of a problem for others. This articleis written to help pl<strong>an</strong> sponsors determineif this approach is a good fit for theirorg<strong>an</strong>ization.An MEP (not to be confused with a multiemployer,or Taft Hartley, pl<strong>an</strong>) is a retirementpl<strong>an</strong> established by one pl<strong>an</strong> sponsorthat is then adopted by one or more participating<strong>employers</strong>. When <strong>an</strong> employermerges its current single-employer pl<strong>an</strong>into a properly structured MEP, the roleof pl<strong>an</strong> sponsor then tr<strong>an</strong>sfers from theadopting employer to the pl<strong>an</strong> sponsor ofthe MEP.The MEP sets up a single pl<strong>an</strong> that coversall adopting <strong>employers</strong>, with the pl<strong>an</strong>document generally written to allowfor variation in pl<strong>an</strong> design among theparticipating comp<strong>an</strong>ies. Fund selection<strong>an</strong>d monitoring generally are h<strong>an</strong>dled bythe MEP. Discrimination testing <strong>an</strong>d pl<strong>an</strong>design (with some limitations) generallyremain with the adopting employer.The shift in responsibility results in severalpotential benefits:Elimination of <strong>an</strong>nual pl<strong>an</strong> audit. Pl<strong>an</strong>sthat cover more th<strong>an</strong> 100 employees typicallyare required to have <strong>an</strong> <strong>an</strong>nual pl<strong>an</strong>audit performed as part of their <strong>an</strong>nualpl<strong>an</strong> Form 5500 filing. Under the MEParr<strong>an</strong>gement, there is still a pl<strong>an</strong> audit,but only one that is performed at theoverall MEP level. The <strong>an</strong>nual audit thatis required by each employer (now knownas <strong>an</strong> “adopter”) is eliminated, resulting insignific<strong>an</strong>t savings to the employer.Mitigation of fiduciary risk. Indepen-Selecting a MultipleEmployer Pl<strong>an</strong>Questions to ask:Will you have to ch<strong>an</strong>ge your existingpl<strong>an</strong> features?Who is h<strong>an</strong>dling the administration(TPA) work, fiduciary oversight, <strong>an</strong>dpl<strong>an</strong> operations?What are the credentials <strong>an</strong>d MEPexpertise of the various parties involvedwith the MEP?How long have the parties to the MEPbeen involved with MEPs?Is there <strong>an</strong> ERISA attorney advising theMEP <strong>an</strong>d maintaining the pl<strong>an</strong> document?If so, what is their background specific toMEPs?How are all of the parties paid? Are therepotential conflicts of interest or prohibitedtr<strong>an</strong>sactions?If you wish to retain your current adviserwithin <strong>an</strong> MEP arr<strong>an</strong>gement, are theyadviser-friendly, holding themselvesaccountable <strong>an</strong>d tr<strong>an</strong>sparent to theadopter’s adviser?Is there a proper separation of the roles<strong>an</strong>d ownership structure of the MEP’spl<strong>an</strong> sponsor, independent fiduciary, <strong>an</strong>dcontracted service providers?What measures does the MEP taketo screen out “bad apples” that couldaffect the entire MEP? Does the MEPcontract allow them to unilaterally push outadopters with compli<strong>an</strong>ce problems?REPRINTED FROM PLANSPONSOR 8/11
dent fiduciary W. Michael Montgomerydescribed the impact on fiduciary liabilitiesin Multiple Employer Pl<strong>an</strong>s as a FiduciaryRisk Mitigation Tool:“Employers adopting a sound MultipleEmployer Pl<strong>an</strong>…achieve a profoundreduction in fiduciary risk exposure. Thereason is a simple one: The adoptingemployer ceases to perform certain keyroles that incur fiduciary status. When<strong>an</strong> employer merges its current singleemployerpl<strong>an</strong> into a properly structuredMEP, it is no longer the sponsor of thepl<strong>an</strong>. It also should cease to be a trustee,pl<strong>an</strong> administrator, or <strong>an</strong>y sort of namedfiduciary. Those central roles move to theMEP, <strong>an</strong>d the inherent fiduciary liabilitytr<strong>an</strong>sfers with them.”The relief offered by MEP participation isextensive but not total. Certain responsibilitiesgenerally remain with the adoptingemployer, <strong>an</strong>d even this reduced role mustbe taken seriously.Those responsibilities include:pl<strong>an</strong> contributions.of match.MEP, including necessary <strong>due</strong> <strong>diligence</strong><strong>an</strong>d monitoring of the MEP.notices <strong>an</strong>d information, though thismay at times be h<strong>an</strong>dled directly by theMEP pl<strong>an</strong> sponsor. t<strong>an</strong>cefor particip<strong>an</strong>ts.Streamlining of pl<strong>an</strong> operations. Inaddition to the audit elimination, MEPadopting <strong>employers</strong> no longer file a Form5500, maintain a fidelity bond, or shoulderthe responsibility for 408(b)(2) compli<strong>an</strong>ce.These are h<strong>an</strong>dled by the pl<strong>an</strong> sponsorthat is associated with the MEP, not theadopting employer. For some <strong>employers</strong>,this benefit is inconsequential. For others,the desire to let outside experts run thepl<strong>an</strong> c<strong>an</strong> be more import<strong>an</strong>t th<strong>an</strong> eitherthe audit relief or fiduciary risk mitigation.MEPs are not a good fit for every employer.Some pl<strong>an</strong> sponsors already are mitigatingtheir fiduciary exposure through a comprehensive,well- documented fiduciaryprocess. Others don’t consider the cost oreffort of <strong>an</strong> <strong>an</strong>nual audit to be signific<strong>an</strong>tenough to justify making a ch<strong>an</strong>ge. Stillothers take satisfaction in staying engagedin pl<strong>an</strong> oversight <strong>an</strong>d fund monitoring.Simply put, if the adv<strong>an</strong>tages of <strong>an</strong> MEPappear to be solving a problem you don’thave, this approach is not for you.An employer also should consider thepotential limitations inherent in mostMEPs. These may include the following:its own fund menu. For m<strong>an</strong>y, thisis a relief. Others w<strong>an</strong>t to have moreinvolvement in investment decisions<strong>an</strong>d consider this a takeaway.some MEPs offer a degree of flexibility,most are tied to a single recordkeeperor third-party administrator, so youwill most likely have to leave behindyour current providers to enjoy thebenefits of adopting <strong>an</strong> MEP.one adopting employer with seriouscompli<strong>an</strong>ce violations could cause theentire MEP to be disqualified, thougha more likely scenario is that correctivemeasures will be taken. In the 20-plusyears that I’ve been associated withMultiple Employer Pl<strong>an</strong> clients, I’ve yetto see this occur. It is import<strong>an</strong>t that<strong>employers</strong> confirm the availability of a“disgorgement provision” in <strong>an</strong>y MEPthat they may be considering. Thisimport<strong>an</strong>t pl<strong>an</strong> design feature allowsthe MEP to quickly eject <strong>an</strong>d therebyisolate <strong>an</strong>y noncompli<strong>an</strong>t adopter fromthe pl<strong>an</strong>.If these features are appealing <strong>an</strong>d thelimitations are acceptable, you may w<strong>an</strong>tto look further into the Multiple EmployerPl<strong>an</strong> approach as a solution to yourcomp<strong>an</strong>y’s retirement pl<strong>an</strong> strategy.I’ve been told by pl<strong>an</strong> sponsors that theydecided to join <strong>an</strong> MEP because theseprograms are h<strong>an</strong>dled the same way astheir other employee benefit programs,where the benefit providers h<strong>an</strong>dle all thedetails. For example, while <strong>an</strong> employercould, at least in theory, negotiate withdoctors, hospitals, MRI service providers,pharmacies, etc., for their employees’medical coverage, most find it easier tooutsource these micro-m<strong>an</strong>aged decisionsto a third party—in that case, a healthinsur<strong>an</strong>ce provider that offers a grouphealth-care policy.There is a trade-off in control, options,etc., but there also is comfort in knowingthat there are professionals at the helm<strong>an</strong>d that they have a vested interest inmaking sure that their employees aretaken care of in accord<strong>an</strong>ce with the termsof the arr<strong>an</strong>gement.Pl<strong>an</strong> sponsors <strong>an</strong>d their advisers will, ofcourse, need to determine on a caseby-casebasis whether these programsare a “fit” for their pl<strong>an</strong>s <strong>an</strong>d their pl<strong>an</strong>particip<strong>an</strong>ts.Americ<strong>an</strong> Pension Services, Inc., is <strong>an</strong> independent third-party retirement pl<strong>an</strong> administration firm located in Clearwater, Florida. APSh<strong>an</strong>dles the compli<strong>an</strong>ce <strong>an</strong>d testing associated with qualified retirement pl<strong>an</strong>s (primarily 401(k) pl<strong>an</strong>s) for small to medium-size <strong>employers</strong>,as well as for numerous Professional Employer Org<strong>an</strong>izations (PEOs) located across the country.REPRINTED FROM PLANSPONSOR 8/11 ©1989-2011 Asset International, Inc. All Rights Reserved. No reproduction or redistribution without prior authorization.For information, call (203) 595-3276 or email reprints@pl<strong>an</strong>sponsor.com