My mother would always tell me that fashion is cyclical and that what was popular once will fall out of disfavor and will become popular again. I was a child in the late 1970s and 35+ years later, ruffled dress shirts, velvet tuxedos, and leisure suits have not come back into style and likely never will.
One thing that was popular a few years back is primed for a comeback and that are multiple employer plans (MEPs). A MEP is a plan where there is one plan sponsor and many employers who have decided to adopt the plan. It essentially becomes a cooperative as small employers would join a MEP to achieve cost savings since daily 401(k) administration pricing favors larger plans A MEP was considered one plan for Form 5500 purposes and many providers were promoting it because it provided liability protection and cost savings to small employers.
MEPs were popular until 2012 when the Department of Labor (DOL) in its lack of wisdom decreed in an advisory opinion that open MEPs (where there was no relationship or commonality between the adopting employers) were not considered a single plan for Form 5500 purposes. That meant in a situation where there was no relationship between the parties, a Form 5500 was required for each adopting employer. That killed one of the great advantages of these open MEPs.
So MEPs are still around, whether they use the old definition of closed or open or not. Thanks to the fee disclosure regulation and other concerns of retirement plan coverage, individual states have explored starting MEPs for small employers in their state. The state of Washington actually has gone through the trouble of starting a plan. The DOL seems to be very receptive of these type of MEPs especially after President Obama threw his support for MEPs.
What really has held back MEPs is this advisory opinion from 2012 that was actually issued to one that belonged to a financial advisory firm. I always thought that MEP seeking an advisory opinion from the DOL was a bad idea because to quote political activist Morton Blackwell: “never give a bureaucrat a chance to say no.” It also doesn’t help that the DOL has not issued any applicable guidance that give or subtract weight to an advisory opinion that only holds for that specific client (while letting all of us know their thinking).
With states getting in the MEP action, it’s time for the DOL that would allow states and other interested parties in starting a MEP that will lower costs for small employers and help them limit their exposure as fiduciaries.