The DOL issued an important Advisory Opinion in January, AO 2017-01, which provides relevant guidance for those who are seeking viable “scale” alternatives to the MEP. The Opinion really acts as a sort of “follow-on” to the DOL’s discussion of the “prototype” arrangement it first described in its legislatively revoked Interpretive Bulletin which permitted state based MEPs. Though it specifically opines on health plans, it has broad applicability to retirement plan arrangements, as well.
An Association of over 360 employers who employ over 9% of the U.S. private sector workforce is developing a package of health plan related services for its members. The idea is to engage in an extensive number of initiatives designed to improve the way in which its employer-members and their employee benefit plans purchase healthcare coverage for their covered employees. It is designed to give its members access to cost, quality and standards for medical networks they could not get on their own, while providing substantially improved care. The initiatives also involves gathering and distributing information to its members and health care providers that will help the members and providers improve their own employee communications and engagement practices.
Here is the key for retirement plans: the Association will act as a negotiating agent on behalf of its members in order to leverage their combined purchasing power to get favorable terms and conditions from their members’ benefit plan vendors.
The DOL addressed two legal questions related to this arrangement which are important to the retirement plan market. The first is whether or not the package of benefit services they negotiated for their clients constituted, themselves, an ERISA plan. The DOL answered “no”, stating that the aggregation services being provided to employers for assistance in their own plans does not give rise the Association providing an employee benefit program. Secondly, the DOL affirmed that a “bundle of administrative services” established under the provisions of the initiative does not give rise to multiple employer (welfare) plan status.
This Opinion matters much in the retirement market: it demonstrates that the scale we seek is not exclusively the purview of the MEP. Vendors have the ability to safely “bundle administrative services” to the same effect of a MEP, provided that they have enough scale on their own to negotiate the sort of investment pricing and expert services which the market seeks. There are product designs which can facilitate these types of arrangements as well, such as insurance company pooled separate accounts and collective trust arrangements, if they are properly priced.
What the Opinion did not address are the fiduciary issues related to the “bundling” functions for retirement plans, which really are at the core of making this work in the retirement market. Yet even here, as more vendors become more comfortable with what is being called the “3(16)” services, the way is further opened for effective bundling.