The DOL’s 2012 Advisory Opinion on MEPs had seemed to effectively close the door to small, unrelated employers leveraging their pooled resources to obtain both advantageous investment pricing and access to professional fiduciary management which are otherwise unavailable to them because of their size.
The potential impact of an Open MEP® on small plan coverage really is striking. The data we had submitted to the DOL on the MEP which was the subject of the 2012 Advisory Opinion showed that 46% of the plans were start-ups, with less than $100,000 in assets, and 81% of the plans had less than 100 employees. These small plans were virtually all safe harbor plans, and had an amazing average deferral rate for active employees of 6% of comp. These plans were receiving investment pricing and selection, and an expert level of services, that was not available to them anywhere else in the marketplace.
The market has struggled since that 2012 Advisory Opinion to replicate the MEP benefits using a variety of hybrid platforms (including a number of vendors just ignoring completely the 2012 Advisory Opinion), some successful and some with mixed results, and there have been impressive attempts in the States to attempt to provide this sort of access. Even the State’s efforts, however, are being crippled by much of a hidebound industry which is engaged in legislative and regulatory efforts impeding this expansion effort to small employers. There has also been a flourish of proposed federal legislation which would effectively overturn the Advisory Opinion-each which their own strengths and weaknesses.
All of these efforts have, to date, focused on the thought that the MEP platform is a sort of Nirvana for increasing small plan coverage. But MEPs are hard to do. As I’ve noted in previous blogs, the recordkeeping is difficult; employers can be surprised by the way vesting rules apply; care has to be taken in the allocation of authority; it is tough and risky to disgorge bad acting players; and there are still a number of unresolved issues in their administration and in the manner fiduciary rules apply. Though EPCRS grants significant relief in correcting errors, the MEP sponsor still needs to price for it having to pay for the errors of the participating members. In short, MEPS carry inherent risk for the MEP organizer and the participating employer.
But what is the alternative? One possibility is the “aggregation model”, or what the DOL referred to in its State MEP Interpretive Bulletin as the “Prototype Approach.” In 2013, I published a “Fixing-the-MEP-White-Paper” that went into a bit of detail on this, in the PEO context. With recent advances in retirement plan Fintech, this approach becomes even more workable. What we have found is that the aggregation approach could mimic a MEP in all respects except in the filing of the Form 5500. Each participating employer in those programs still need to file their own 5500s, including their own plan audits for large plans.
An impressively short, but impactful, piece of proposed legislation could change all of that. With one small change, it has the potential to make aggregation programs better and more useful than the MEP platform in increasing small plan coverage. The bill was introduced in the Senate by Sens. Mark R. Warner (D-VA), a member of the Senate Finance Committee, and Susan Collins (R-ME), who chairs the Senate Special Committee on Aging; and the House version was sponsored by Reps. Linda Sánchez (D-CA), a member of the Committee on Ways & Means, and Phil Roe (R-TN), a member of the Committee on Education and the Workforce.
The bill would simply permit unrelated employers which have the same plan administrator, trustee, one or more named fiduciaries which are the same, the same investments and the same plan year to file a “single aggregated” Form 5500.
This legislation could fundamentally change the MEP landscape, and even lessen the contention over state run MEPs. It would do this by opening the market for the advantageous pooling of the resources of small employers which would have otherwise been reserved to the State programs. It also could minimize any need for new federal MEP legislation, and promote models which are a lot less risky than the MEP.
All in one very short, bipartisan, non-controversial piece. Isaac Asimov, the scientist and incredible science-fi writer, would be proud, methinks of this real life use of his concept of “Minimum Necessary Change” .
By the way, this can also be accomplished by regulatory fiat by the DOL. See the comment letter to the DOL which lays out the details.