The Open MEP Urban Legend and Weapons of Mass Distraction

This reminds me of the line Ronald Reagen used in the 1980 Presidential debates in response to what he thought was Jimmy Carter misinterpreting one his positions. Reagen said : “there he goes again.”

One of the most unfortunate developments in the retirement plan business in the last six months has been the misrepresentation of the validity of multiple employer plans (MEPs).

As the story goes, an attendee at a mid-west benefits conference asked some folks at the Department of Labor (who have still remained nameless) about the use of open MEPs, which are MEPs open to all employers (regardless of industry or association membership). A question was presented to those representatives of the DOL about open MEPs where the plan sponsor was a third party administration (TPA) firm. Quoting directly from someone who was actually there, an ERISA attorney (no less) said: “[the]  DOL representatives told GAC on June 13^th that it is their opinion that the structure being considered by some TPA firms is not a multiple employer plan, but a series of individual single-employer plans covered under a common document.  Why?  Because there is not a sufficient connection between the plan sponsor (the TPA firm) and the participating employers and their employees to enable the TPA firm to act as the plan sponsor.  If the DOL position holds, many of the advantages to the TPA-provided multiple employer plans evaporate.  The DOL’s position has never been formalized with respect to retirement plans, but has been longstanding with regard to health and welfare plans.  The DOL representatives indicated to us that they believe that the same analysis they used for the multiple employer welfare plan should be used for retirement plans.”

Before you knew it, within days of this conference, the MEP Chicken Little was insisting that the sky was falling.  This started what I called the Open MEP Urban Legend and how all open MEPs were under risk. Many financial advisors and service providers were starting to shy away from all open MEPs, regardless of whether the plan sponsor was a TPA or not. While I am not crazy about a TPA being a MEP sponsor for a wide variety of reasons, there is nothing wrong with it even despite what these unnamed DOL representatives say. Why? Because qualified retirement plans are governed by rules and regulations and some comment at a benefit conference is not binding. While I would caution participating employers interested in a TPA sponsored MEP, my caution is that the DOL might one day hold that a TPA can’t be a MEP sponsor.

So while the analysis about what happened at the benefits conference was clear, the game of “retirement plan telephone” was not. So people with limited background in retirement plan knowledge were making false allegations against the validity of MEPs. Being the chief fiduciary of one MEP and representing a TPA who is currently entering the MEP administration business, I find that problematic. I recently received an e-mail sent by a representative of an insurance company provider to a financial advisor regarding the validity of MEPs and totally misrepresenting the view of that ERISA attorney who was at that conference. In addition, this representative made some allegations against one of the more well known MEP providers, suggesting that their 2010 incorporation was an issue (it was not) and that the person acting at the financial advisor was a one man shop (that is not an issue here). The funny part of the e-mail is that this representative is from a well known insurance company who has been in the middle stages of finding a MEP solution for themselves. So I guess what may be good for them, isn’t good for other providers interested in the MEP space.

That being said, this is probably the 3^rd or 4^th time I have blogged on this very same issue, and I will not stop blogging about it until the urban legend of the DOL investigating open MEPs is put to rest.