I believe in the idea of open multiple employer plans (MEPs) because when done correctly, it can serve as a cost effective solution for many (not all) smaller plans that might have been forced to pay higher fees if they were not aggregated with other, unrelated employers. Not only have I worked on these MEPs with third party administrators and spoken about them, I actually started one on my own.
For the past year, open MEPs, where there is no commonality among employers (unlike a closed MEP where it’s only open to members of an association or group), there has been much concern that the Department of Labor (DOL) has looked unfavorably on open MEPs. Open MEPs are allowed under the Internal Revenue Code and under the Treasury Regulations, so I suppose that if the DOL has an issue with them, they will have to get the law changed.
Whether the DOL will help kill off Open MEPs or add much needed guidance on how they can be structured, that is open for debate. If there are folks out there who believe that MEPs need commonality and the DOL will put Open MEPs out of business, that’s their opinion and I respect that. I have no qualms for those with different viewpoints, but I take issue is when people exaggerate and mischaracterize the debate.
At issue recently was the certain case of an Idaho fiduciary who has been accused of stealing $5 million from two Open MEPS. Unfortunately, I am indirectly involved in this matter, having succeeded this fiduciary on another MEP. He is currently under indictment where the Department of Justice claims that the Open MEPs qualify as a single employer plan. He is also being sued by the DOL to recover the money that he has been accused of stealing. In a request for a restraining order to have this fiduciary removed as the chief fiduciary of one of these MEPs, a staff attorney at the DOL (I believe from the Seattle EBSA office) drafted a memorandum where she claims that the Open MEP in question is not a single employer plan, because there was no commonality among the adopting employers. Instead, the DOL argues that the MEP represents separate plans, with each plan belonging to an adopting employer of the MEP.
What does it mean? For the detractors of Open MEPs, it’s further view that the DOL has issues with Open MEPs. For someone who supports Open MEPs, the view contradicts current law and may not be indicative of the DOL’s position since this was drafted by a staff attorney in Seattle who is conjuring legal arguments to support a restraining order to enjoin this fiduciary to continue the control of this MEP. If we want to remove some as the fiduciary of a MEP, doesn’t it sound better to say he represents 25 plans (adopting employers) than just one old MEP? Perhaps.
What it means is open for debate, nothing wrong with that. What bothers me is the absolute propaganda that certain detractors of MEPs have propogated.
A few days ago, an advisor I know forwarded me an e-mail that a certain third party administrator forwarded to a well known member of the retirement plan community, who then forwarded to a network of advisors and brokers he knew.
In part of the e-mail, the representative of this TPA stated: “the DOL ruled unfavorably yesterday on the on the Hutchinson (sic) open DC MEP and went out of their way to point out that the plan’s adopting employers had no commonality. The attorneys and DOL and IRS agents here pointed out that by going out of their way in this ruling to point out this fact suggests they do not support open MEPs.”
While this memorandum in support of a restraining order in a civil case may represent the DOL’s thinking, it’s an argument in support of a restraining order. If the judge grants the order, perhaps the judge buys the DOL’s argument, perhaps the judge grants it regardless. Whatever the DOL’s view is, it’s not a ruling and the author of that e-mail who graduated from law school should have known better to make a view in a civil matter to be anything more than what it is, a legal argument. The DOL made a memorandum, it did not make a ruling because as a litigant, it can’t, that’s up to the Judge. What should also be noted is that the TPA does some work in the cash balance area. As you may recall, for many years, the Internal Revenue Service stated that cash balance plans should not be allowed because they are discriminatory. Well, who supports cash balance plans now? The IRS. Did this TPA stop drafting and administering cash balance plans during the era of the IRS’ discontent. Probably not, because they believe what they were doing was within the limits of the law. Sound familiar? Sounds like a TPA wants to kill off Open MEPs to protect its space. Maybe a cash balance or 401(k) Open MEP threatens them? That’s for another day.
Many advisors might have read this forwarded e-mail and believe this propaganda. It’s misinformation because a legal argument is not a ruling and is not binding on anyone interested in or belongs to a MEP.
What does it mean? Not a whole lot. We are where we were a year ago, in a state of flux when it comes to Open MEPs. Open MEPs are still alive, the DOL did nothing except make an argument in a case in lovely Idaho. To be continued….