Feeling overwhelmed by the idea of adding a retirement plan to your benefits package? Joining a Multiple Employer Plan (MEP) might be your solution. Designed for scale, this program can streamline plan administration and allow you to benefit from economies of scale.
MEPs have been around for some time, but until recently, certain regulations have limited their accessibility. SECURE Act 1.0 and SECURE Act 2.0 have changed the rules governing MEPs, enabling more businesses to take advantage of them.
This article will explain how MEPs work, discuss their advantages, and help you decide if it’s the right approach for your business’ retirement benefit. Let’s jump in.
A MEP is a retirement savings plan that allows multiple employers to participate under a single plan structure. Essentially, it’s a way for different companies to come together and pool their resources to offer retirement plans to their employees. This shared structure can lead to cost savings and reduced administrative duties.
There are two main types of MEPs:
- A closed MEP is only available to employers with some existing commonality or relationship, such as businesses in the same industry or geographic area.
- An open MEP, on the other hand, is available to any employer regardless of size, industry, or location.
MEPs vs. Pooled Employer Plans (PEPs)
Introduced by the SECURE Act, Pooled Employer Plans (PEPs) are a type of open multiple-employer plan. The main difference is that PEPs have a Pooled Plan Provider (PPP) who manages all aspects of the program on behalf of multiple employers. This arrangement can reduce the administrative burden on participating employers.
Both MEPs and PEPs present valuable opportunities for employers looking to offer retirement benefits to their employees. Companies with close industry affiliations may prefer to join an MEP of related employers closely aligned with their needs, whereas a PEP is open to all employers and may be less custom to their plan’s demographics.
MEPs vs. Groups of Plans (GoPs)
Groups of Plans (GoPs) offer a hybrid approach to the world of pooled plan structures. Unlike Multiple Employer Plans (MEPs) where multiple businesses share a single plan document, in GoPs, each company still has its own retirement plan but with some shared features.
GoPs allow several employers to file one Form 5500 (a report detailing a company’s employee benefits) instead of each doing their own, assuming they meet certain requirements. The businesses also pool their investments, which can help small plans negotiate better pricing. This gives small businesses the benefits of being part of a bigger group, without losing the ability to customize their retirement plans.
GoPs can be a great choice for smaller employers looking to pay only for services they actually need. However, it’s important to keep in mind that individual employers that would need an independent qualified plan audit still need one for their specific plan.
Advantages of MEPs
MEPs offer several advantages. Here are some of the top benefits:
- One-stop shopping: With an MEP, someone has ready-assembled a best-in-class offering that you can use. This includes all plan fiduciaries: ERISA 3(38) investment management, ERISA 3(16) administrative, and ERISA 402(a) oversight. Instead of having to interview each fiduciary, you can get a “ready-made” package by joining a MEP.
- Economies of scale: By combining the assets of multiple employers, pooled plans can achieve economies of scale as more assets in the plan can potentially increase your negotiating power and allow for lower investment fees and better service offerings.
- Tax advantages: Finally, employers who join an MEP are still eligible to earn start-up tax credits from the IRS that can further reduce the cost of administering a retirement plan. By joining a pooled plan, you get the same tax benefits as if you had started a new plan.
By reducing administrative responsibilities and consolidating resources, MEPs enable businesses that might not have the resources to offer a retirement plan on their own to offer their employees this valuable benefit.
Potential Drawbacks of MEPs
While MEPs offer a range of advantages, there are a few considerations employers should be aware of:
- Limited flexibility: One potential drawback of MEPs is that each individual employer cannot pick the individual experts for their plan, like the investment manager and plan administrator. This could mean that specific preferences or nuances that could be tailored to your business might not be available.
- Fiduciary responsibility: Many people think that joining a pooled plan absolves them of responsibility, but joining an MEP does not completely absolve you from your fiduciary liabilities. Employers are responsible for the selection and monitoring of the MEP (or PEP’s) activities and making sure the MEP administrator upholds the highest fiduciary standards, at a reasonable cost.
It’s important to weigh these considerations carefully against the benefits when determining if joining an MEP (or PEP) aligns with your business’s goals.
The SECURE Act 2.0 has expanded access for businesses and employees seeking participation in long-term savings. By pooling resources in an MEP, small and mid-size businesses may be able to capitalize on the benefits of economies of scale to reduce costs and simplify plan administration. Plus, offering the right plan can make all the difference in attracting, retaining, and supporting a thriving workforce.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.