selecting an open mep employers due diligence checklist - Fi360

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“Multiple” ChoiceMultiple Employer Plans—an enticing alternative for plan sponsorsTerrance PowerCFP, QPA, ERPA, AIFA, APR, CLU, ChFCPresidentAmerican Pension Services, Inc.AN INTRIGUING new use of a long-establishedconcept is catching the attention ofsmall to mid-size plan sponsors seekinga way to simplify 401(k) plan oversight:Multiple Employer Plans (MEPs). Bymerging their plan into a properly structuredMEP, employers cease to be a plansponsor and effectively transfer many ofthe responsibilities and 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 bycompanies that share a common industryor payroll provider, primarily associationplans and professional employer organizations(employee leasing). However,as interest in outsourced fiduciary solutionshas grown in recent years, a newgeneration of “open” MEPs for unrelatedcompanies has sprung up. While MEPscan deliver tremendous benefit to manyplan sponsors, an MEP is a solution insearch of a problem for others. This articleis written to help plan sponsors determineif this approach is a good fit for theirorganization.An MEP (not to be confused with a multiemployer,or Taft Hartley, plan) is a retirementplan established by one plan sponsorthat is then adopted by one or more participatingemployers. When an employermerges its current single-employer planinto a properly structured MEP, the roleof plan sponsor then transfers from theadopting employer to the plan sponsor ofthe MEP.The MEP sets up a single plan that coversall adopting employers, with the plandocument generally written to allowfor variation in plan design among theparticipating companies. Fund selectionand monitoring generally are handled bythe MEP. Discrimination testing and plandesign (with some limitations) generallyremain with the adopting employer.The shift in responsibility results in severalpotential benefits:Elimination of annual plan audit. Plansthat cover more than 100 employees typicallyare required to have an annual planaudit performed as part of their annualplan Form 5500 filing. Under the MEParrangement, there is still a plan audit,but only one that is performed at theoverall MEP level. The annual audit thatis required by each employer (now knownas an “adopter”) is eliminated, resulting insignificant savings to the employer.Mitigation of fiduciary risk. Indepen-Selecting a MultipleEmployer PlanQuestions to ask:Will you have to change your existingplan features?Who is handling the administration(TPA) work, fiduciary oversight, andplan operations?What are the credentials and MEPexpertise of the various parties involvedwith the MEP?How long have the parties to the MEPbeen involved with MEPs?Is there an ERISA attorney advising theMEP and maintaining the plan document?If so, what is their background specific toMEPs?How are all of the parties paid? Are therepotential conflicts of interest or prohibitedtransactions?If you wish to retain your current adviserwithin an MEP arrangement, are theyadviser-friendly, holding themselvesaccountable and transparent to theadopter’s adviser?Is there a proper separation of the rolesand ownership structure of the MEP’splan sponsor, independent fiduciary, andcontracted 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 compliance problems?REPRINTED FROM PLANSPONSOR 8/11
dent fiduciary W. Michael Montgomerydescribed the impact on fiduciary liabilitiesin Multiple Employer Plans as a FiduciaryRisk Mitigation Tool:“Employers adopting a sound MultipleEmployer Plan…achieve a profoundreduction in fiduciary risk exposure. Thereason is a simple one: The adoptingemployer ceases to perform certain keyroles that incur fiduciary status. Whenan employer merges its current singleemployerplan into a properly structuredMEP, it is no longer the sponsor of theplan. It also should cease to be a trustee,plan administrator, or any sort of namedfiduciary. Those central roles move to theMEP, and the inherent fiduciary liabilitytransfers with them.”The relief offered by MEP participation isextensive but not total. Certain responsibilitiesgenerally remain with the adoptingemployer, and even this reduced role mustbe taken seriously.Those responsibilities include:plan contributions.of match.MEP, including necessary due diligenceand monitoring of the MEP.notices and information, though thismay at times be handled directly by theMEP plan sponsor. tancefor participants.Streamlining of plan operations. Inaddition to the audit elimination, MEPadopting employers no longer file a Form5500, maintain a fidelity bond, or shoulderthe responsibility for 408(b)(2) compliance.These are handled by the plan sponsorthat is associated with the MEP, not theadopting employer. For some employers,this benefit is inconsequential. For others,the desire to let outside experts run theplan can be more important than eitherthe audit relief or fiduciary risk mitigation.MEPs are not a good fit for every employer.Some plan sponsors already are mitigatingtheir fiduciary exposure through a comprehensive,well- documented fiduciaryprocess. Others don’t consider the cost oreffort of an annual audit to be significantenough to justify making a change. Stillothers take satisfaction in staying engagedin plan oversight and fund monitoring.Simply put, if the advantages of an 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 many, thisis a relief. Others want to have moreinvolvement in investment decisionsand 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 an MEP.one adopting employer with seriouscompliance 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 Plan clients, I’ve yetto see this occur. It is important thatemployers confirm the availability of a“disgorgement provision” in any MEPthat they may be considering. Thisimportant plan design feature allowsthe MEP to quickly eject and therebyisolate any noncompliant adopter fromthe plan.If these features are appealing and thelimitations are acceptable, you may wantto look further into the Multiple EmployerPlan approach as a solution to yourcompany’s retirement plan strategy.I’ve been told by plan sponsors that theydecided to join an MEP because theseprograms are handled the same way astheir other employee benefit programs,where the benefit providers handle all thedetails. For example, while an 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-managed decisionsto a third party—in that case, a healthinsurance 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 helmand that they have a vested interest inmaking sure that their employees aretaken care of in accordance with the termsof the arrangement.Plan sponsors and their advisers will, ofcourse, need to determine on a caseby-casebasis whether these programsare a “fit” for their plans and their planparticipants.American Pension Services, Inc., is an independent third-party retirement plan administration firm located in Clearwater, Florida. APShandles the compliance and testing associated with qualified retirement plans (primarily 401(k) plans) for small to medium-size employers,as well as for numerous Professional Employer Organizations (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@plansponsor.com
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selecting an open mep employers due diligence checklist - Fi360

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