I am a very opinionated guy, I’m sure you have noticed. I’ve never been one to go with the flow, heck I’m a New York Mets fan and I have never watched an episode of Game of Thrones, Mad Men, or The Walking Dead. My opinion has ruffled a few feathers over the last few years, but I am who I am and I don’t think I’d have a successful practice without my opinion.
Too many people in the retirement plan industry want to think that everything is great and I’m too honest to admit that everything is fine when it’s not. So I’m going to get something off my chest and I’m sure some feathers will be ruffled.
A year ago, the Department of Labor (DOL) issued an advisory opinion that decimated the use and value of what was once termed “open” multiple employer plans (MEPs). Basically, the DOL stated that for a MEP to be considered one plan and to have one 5500 issued that would cover all adopting employers, there would have to be some sort of nexus, a connection between all adopting employers and the connection can’t be that they all use the same provider.
The reason is that the advisory opinion was issued by the DOL was that one MEP decided to seek a ruling. When I was a student in college, I took a political seminar taught by Morton Blackwell’s Leadership Institute and Morton’s #1 motto was that you never give you a burecarat a chance to say no. If you ever saw how the MEP was set up and how high the fees were, you knew that being pigs at the trough, that a bureaucrat would say no to them if given a chance.
The plan sponsor of the MEP was affectively a prop set up by the plan provider; it essentially was the financial advisor’s later ego. The fees were huge, maybe because it used an insurance company platform, maybe not. An ERISA attorney who I have tremendous respect for submitted the Plan to get it approved as an Open MEP because the plan apparently wanted it settled whether an Open MEP could be recognized as a single plan (so a single Form 5500) because some DOL officials thought otherwise.
Thanks to this MEP for trying to get DOL approval, but it ruined the MEP business for everyone. Many providers including myself who put together MEPs that did what they were supposed to do, offer limited liability and lower plan expenses were forced to rearrange their plans in order to meet the criteria set forth by the DOL in that advisory opinion.
I believe the application by this MEP was reckless because this was not the type of Open MEP that should have sought approval because its fees were exorbitantly high (the opposite of what MEPs are supposed to offer) and the plan sponsor was a subsidiary of the plan provider, it essentially was a legal fiction, a puppet company only created to serve as a plan sponsor.
Did this Advisory Opinion cause the MEP provider much harm? Not really because they are at it again. Their MEP is now a MEAP, which they call a Multiple Employer Aggregation Plan (MEAP), which pretty means a MEP with a 5500 form for each employer and the plan sponsor serving as the ERISA 3(16) administrator. The fees are as high as ever. For example, a $900,000 plan that joins the MEAP as an adopting employer pays 120 basis points plus $23 a participant. The financial advisor gets a 40 basis points trail, but luckily that is embedded in that 120 basis point asset based fee. If you are an adopting employer who has no assets, well you’re out of luck because you pay 230 basis points. Remember that doesn’t even include the expenses of the investment options under the Plan.
A leopard can’t change its spots, so a MEP that charges sky high fees just becomes a MEAP charging sky-high fees. A year later, the DOL and IRS have still not resolved the discrepancy between the two of them on whether Open MEPs can exist as they did before last year’s Advisory Opinion. Unfortunately, the MEP leopard lives on while other MEPs who charged minimal fees and were great examples of how MEPs should be were forced to dissolve. Tag, they’re still it. Actually the adopting employers are it or are they just paying it? Feel free to discuss.