MEPs: The Rumors, The Facts, and Buying in Bulk

1n 1946, a bunch of grocers in New Jersey started a cooperative called Wakerfern Corporation so they could get reasonable prices on wholesale goods. In 1951, these grocers decide to market their independently owned groceries under one name and that name was Shoprite.  By uniting as a cooperative, these grocers (which have grown in number) are able to buy products in bulk and at a lower cost so that they can compete against other supermarkets.

I always see multiple employer plans (MEPS) as the ability of small plans to group together and buy in “bulk”. By buying in “bulk” and grouping together with other employers, plan sponsors can get a better product at a better price. At least that’s the way it should be.  For me MEPS is the ability of smaller plans to have a greater choice in the choice of plan providers, allowing them to get services from unbundled providers that they probably could not afford as a standalone plan.

MEPS have become very popular of late and have certainly become a burgeoning business for me. That being said, any burgeoning business will bring in the entry of many new players in the market. The problem for the MEP area, it may bring in a lot of providers that have no background in MEPS or understand how they actually operate.

There has been discussion of late of the Department of Labor (DOL) looking at MEPs of late because someone asked someone from the DOL at some benefits conference. The person for the DOL said that they would be taking a closer look at MEPs that are “open”, meaning that the plans are not affiliated through an association like a bar association or some type of civic group. Low and behold, a lot of people started to act as if the MEP sky was falling. You had advisors questioning of having their clients in MEPs and plan providers consider curtailing their interest in them.  Calm yourselves, will you? The sky isn’t about to fall just yet and there is no reason to panic. Having someone from the DOL say something at some Midwest benefits conference is hardly regulation. However, if you read between the lines, I think MEPs that really look like individual plans bundled together for the sole purpose of avoiding separate 5500s. What types of MEPs are these? I think MEPs where you have the third party administrator (TPA) or a registered investment advisor as the plan sponsor.  If the plan sponsor is an association or a company that is unrelated to the TPA, I don’t think you have anything to worry about. If I’m wrong and the DOL is going to act on open MEPs, they would offer some relief to wind them down and allow the participating employers to spin them off.

As with anything new and popular, you hear a lot of false marketing and innuendo. One piece of false marketing is that joining a MEP totally eliminates a participating employer’s fiduciary responsibility. Not true. Joining a MEP is a fiduciary function, so the participating employer still has potential liability. Another false rumor out there is that if one participating employer is not in compliance, then the entire plan is out of compliance and susceptible to plan disqualification. While the malfeasance of a participating employer puts the entire MEP at risk, the issue is really a red herring. First off, the Internal Revenue Service allows MEP to self correct or voluntarily correct any plan errors. In addition, plan disqualification is an extreme penalty and is very doubtful that the Internal Revenue Service would disqualify all participating employers for the malfeasance of one. In addition, a good MEP helped by a good ERISA attorney (cough, cough) would draft language in the participating employer/joinder agreements that would force the spinoff of participating employers who refused to abide with the compliance of the plan such as paying top heavy minimum contributions.

In addition, there are a lot of insurance company based MEPs. While I have not really look into the issue on a fund expense level, I always believe that the beauty of a MEP was low costs, so I would urge employers and their advisor to look into cost.

A MEP isn’t for anyone, but it s a great opportunity for some employers to get a better plan at a better price.

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