Financial advisors would do well to consider working with multiple employer plans, in which one retirement plan is adopted by two or more employers.
MEPs can be powerful tools to help small- to medium-sized employers have greater access to retirement plans that are now too expensive, says Gerald Wernette, principal and director of retirement plan consulting at Rehmann Financial in Farmington Hills, Mich.
“By pooling with other employers in a MEP, they have greater buying power to bring the prices down,” he says. “Alternatively, MEPs may not lower the cost of the plan, but their buying power could get a higher level of service for the same price.”
With a MEP, employers would be able to have a 3(16) plan administrator and a 3(38) investment manager who is independent, “so it’s not like the fox guarding the chicken coop,” Wernette says.
Moreover, they can always take the plan and go to another record keeping/investment platform.
Advisors can “offload” onto these other experts all the technical matters related to the Employee Retirement Income Security Act of 1974, and focus on giving wealth management and retirement planning advice to the business owners and their employees.
“This also creates stickier relationships with the business owners,” Wernette says.
Many advisors might think “it’s a little bit intimidating” to work with MEPs, considering the sheer volume of employers and employees that can be in them, says Jim Kais, senior vice president at Transamerica Retirement Solutions in Harrison, N.Y.
However, advisors can serve as or use a delegated 3(38) investment fiduciary selecting or deselecting investments within one fund lineup for all employers and participants.
In addition to consulting individual employees within the MEP, advisors can also help business owners with succession planning, firm valuation and more, Kais says.
“Since many employers and participants are scattered around the country, it is important for advisors considering MEPs to evaluate all providers and their ability to conduct education and enrollment meetings and consult with prospective, geographically dispersed adopting employers on items such as plan design,” he says.
The Department of Labor in 2012 issued guidance taking a narrow view of what types of MEPs are appropriate, says Bradford Campbell, an attorney at Drinker Biddle & Reath in Washington.
In most cases, the Labor Department considers employers participating in a MEP as separate plans with a common structure.
This means that each employer must still file separate Internal Revenue Service 5500 tax forms, and employers with more than 100 employees must also undergo separate third-party audits. The exceptions to these rules include MEPs for trade associations or union plans meeting specific conditions.
“Advisors should question closely MEPs that represent themselves as a single plan rather than a common administrative structure,” Campbell says.
Katie Kuehner-Hebert is a freelance writer in Running Springs, Calif. She has contributed to American Banker, Risk & Insurance and Human Resource Executive.
This story is part of a 30-day series on Social Security and retirement income strategies.
