I have been hearing a lot from advisors and plan providers about multiple employer plans (MEPs) with the idea that open MEPs where a plan where the adopting employer have no commonality, but be treated as one plan for ERISA purposes maybe be back in business through a change in the law.
While it’s been 6 years since the Department of Labor opined about their ideas regarding MEPs in an advisory opinion, many of us are still hoping that they’re allowed again especially when states have been allowed to offer IRA products and programs that are far inferior to what private sector plan providers can offer.
While I love the idea of MEPs, they aren’t the perfect fit for every plan sponsor out there. There is the surrender of control (with the liability that goes with it) to the MEP plan sponsor where there maybe plan provisions that the MEP may not offer. Most importantly, the idea behind the MEP is that it’s a cooperative where small plans are grouped together with better pricing and better share classes. Yet, most of the years in the business, I’ve seen too many high cost, insurance-based 401(k) MEPs. High costs MEPs defeat the purpose behind the MEP. If you want to talk about high-cost MEPs, look no further than the $1 billion MEP that sought the advisory opinion that sunk Open MEPs for everyone.
Open MEPs aren’t the solution for every small to medium sized plan sponsor. Plan sponsors need to identify the cost of joining a MEP and whether the cost is far less than what they have on their own. I’ve seen too many MEP adopting employers that might be better off with their own plan.
Open MEPs can be a great thing if priced accordingly, but it’s still not the solution for every small plan out there.