There is a serious, and important, debate occurring whether, and to what extent, should there be MEP reform following the DOL’s restrictive advisory opinion on the matter in 2012. There appears to be bi-partisan support for the changes proposed in Senator Hatch’s SAFE Act, which makes wholesale changes to the current MEP rules, and will make them much more widely available.
My own position on the matter has really transformed with time and experience since the Advisory Opinion. The real question now is whether the benefit from re-opening MEPS outweighs the potential regulatory difficulties which will accompany it. Though I believe MEPs can be valuable tools under the right circumstances, the Holy Grail is NOT the MEP. The MEP is only a tool; the goal is to cost effectively bring the advantages of scale to the small case marketplace. What we have discovered over time in developing MEP alternatives since the Advisory Opinion is that there can be better ways to bring scale to the market, one that involves traditional methods of fiduciary allocation and pooling of investments.
I have long been an advocate of making the simplest regulatory change to achieve the necessary goal (see, for example, my blog on annuity regs). To my mind, then, the only “MEP” Reform really needed is a modest change to the Form 5500 rules which would permit employers which aggregate their investments and fiduciary allocations to also pool their Form 5500s. The TAG Statement of Troy Tisue to the ERISA Advisory Council lays out this position nicely.
Now the Rebuke. What is NOT helpful, however, to this discussion is the misinformation of the sort contained in an article entitled “Multiple Employer Plans (MEPs) are a marketing play, not a way to cut costs. We don’t need them” on something called the Employee Fiduciary blog, linked on Benefitslink on December 10. The article took direct aim at “Open Meps”®, (note that the term Open Mep® is actually a registered trademark of TAG Resources) claiming their promotion is a conspiracy of Wall Street to hoist unnecessary and expensive financial products on small plans, as a way to further promote mutual fund interests.
Quite frankly, I could choose to either be flattered or flabbergasted by the article, given my deep involvement in the development of Open Meps® with TAG Resources, and Advisory Opinion, 2012-04.
To a long-time corporate attorney like myself, with a pedigree in the financial services industry, being accused of being a Wall Street shill could be, in a very real way, considered a sign of significant success in our fine profession. It surely demonstrates my skills as a rainmaker of the highest order with the kind of clients of which most attorneys could only dream of having.
I choose, however, to be flabbergasted by the misinformed view expressed in that article that small employers are fine, thank you, and that they need no assistance in dealing with large financial service companies with what amount to contracts of adhesion. Those who are familiar with the small end of the 401(k) market know of the pressure to adopt proprietary funds with the highest expense loads; the limited access to competing fund families; the lack of affordable expertise; and the often-lousy level of services which accompany the lack of scale. Its not that this is part of a diabolical plot; its just a matter of economics. This has not gotten better over the past 25 years, as the article states. It has, actually, gotten much worse.
In spite of the absurd assertion to the contrary, small employers do need to be able access the buying power which is only available with scale, for which it is still far too hard for them to obtain. The question is how it will most effectively be done.