selecting an open mep employers due diligence checklist - Fi360

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SELECTING AN OPEN MEP 1EMPLOYERS DUE DILIGENCE NUTSHELLCHECKLISTPREPARED BYCHARLES G. HUMPHREY, ESQ.*Does Employer Understand?1 Employer will not be relieved of allfiduciary liability under ERISA2 Tax qualification of entire plan may beaffected by problems of otheremployers3 Service by employees with MEPemployers is counted for eligibility andvesting4 Discrimination rules apply onindividual employer-by-employer basis5 Employer will be able to establish itsown eligibility, vesting andcontribution provisions6 Plan assets are not segregated on anemployer-by-employer basisImpact on Current Structure7 Will you have to change your existingplan features?8 If you wish to retain your currentadviser within an MEP arrangement,are they adviser-friendly, holdingthemselves accountable and transparentto the adopter’s adviser?Provider Experience andSupport9 How long have the parties to the MEPbeen involved with MEPs?CommentAdoption of MEP itself by an employer is not a fiduciary function,but selection of MEP sponsor and responsibility for monitoring ofthe MEP provider is.Disqualification of plan can lead to loss of deductions forcontributions to the plan, income taxation of trust earnings andtaxable income to participants; impact moderated by IRSEmployee Plans Correction Resolution System (EPCRS).Not likely to be a significant factor in terms of decision toparticipate in the MEPThis includes coverage and average deferral percentage andaverage contribution percentage testingThis puts employer in same position it would be in if it adopted itsown plan, but without some of the other drawbacks associatedwith individual sponsorship.It is theoretically and practically possible that plan assetsattributable to the contributions one employer could be used forthe benefit of another employer’s employees.Some MEPs may not have sufficient flexibility in their terms toaccommodate your current plan design. Careful review of yourplan against MEP is necessary before adopting the MEP.1 An Open MEP is a single plan sponsored by an independent plan sponsor covering employees of a number of unrelatedemployers under a centralized administrative and fiduciary structure.“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.
10 What are the credentials and MEPexpertise of the various partiesinvolved with the MEP?11 Is there an ERISA attorney advising theMEP and maintaining the plandocument? If so, what is theirbackground specific to MEPs?Self-Dealing and ProhibitedTransactions12 Is there a proper separation of the rolesand ownership structure of the MEP’splan sponsor, independent fiduciary,and contracted service providers?13 How are all of the parties paid? Arethere potential conflicts of interest orprohibited transactions? Does providerhave any ability to determine its owncompensation or to pay its affiliatesadditional compensation?Reasonableness ofCompensation14 What is the amount of compensationpaid to the provider and other serviceunder the arrangement? Is itreasonable?Plan Administration andFiduciary Structure15 Who is handling the administration(TPA) work, fiduciary oversight, andplan operations?16 Does the provider have written policiesand procedures?Fiduciary Liability Insuranceand Related Liability Items17 Does the Employer maintain fiduciaryliability insurance?18 Has the provider, within the last fiveyears, been sued or settled claims byemployers in connection with theprovision of services under the MEP,been subject to a government audit orfiled under an IRS or DOL correctionprogram?Employer ResponsibilitiesServices provided to a plan by service providers are subject toERISA Section 408(b)(2) which requires that no more thanreasonable compensation be paid for them.The employer should seek information from the provider aboutfees and compare that information to the fees charged by otherproviders offering similar services. This is often called“benchmarking.”Employers considering adopting a MEP must assess whether theprovider can do the job.If none are in place, the employer should look for anotherprovider.The employer will want to know the amount and the carrier.“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.
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