The Multiple Employer 401(k): A Bigger Bang For The Buck

One of the positive aspects of full fee disclosure is that many third party administration (TPA) firms have dusted off an old idea as a viable vehicle to offer unbundled, 401(k) services to small employers at a reasonable fee.

The multiple employer plan has been around for years, but so many plan sponsors and their financial advisors are unaware of their benefits. Thankfully, several TPAs through LinkedIn and 401(k) Rekon seminars have been highlighting this alternative for small plans, rather than the expensive, bundled route.

A multiple employer plan is a single-employer plan maintained by two or more contributing sponsors that are not members of the same controlled group. Under the multiple employer plan, all plan assets are available to pay benefits to all plan participants and beneficiaries. While the multiple employer plan is one plan, it can be treated as separate plans because each sponsoring employers is  responsible for funding contributions solely for their own employees. Each employer is also subject to separate testing under the plan. What makes the multiple employer plan attractive is that the employers benefit from the simplified documentation and administration of having one multiple employer plan rather than separate plans. Since there is one plan document and only one 5500 annual filing with assets grouped together, there is tremendous savings on the part of a small employer who joins this type of plan since the administration cost is borne by all employers operating under the plan and fiduciary liability is minimized because the plan will be handled by a sponsoring group or association. Since daily 401(k) plan pricing is based on the size of assets, a multiple employer plan offer economies of scale that would never be offered to a small employer starting a plan as its own. As a small employer, being a part of an unbundled multiple employer plan is probably a lot cheaper than the typical insurance based 401(k) platform,

Bar associations and other industry groups have offered this type of arrangement to its members. If you are a financial advisor or a small sponsor, consider the virtues of a multiple employer plan .