MULTIPLE EMPLOYER PLANS: IS NOW THE TIME TO JOIN?

Multiple employer retirement plans are not a new concept, but have been in the industry for quite some time…..

The idea is very engaging…..it’s a way to leverage the strength and buying power of multiple employers, by allowing them to purchase a broader depth of services at institutional pricing.

But it’s real value is much more than just better services at lower/cheaper pricing. Everybody sells on some variation of “service” and “pricing” (costs).

What the Multiple Employer Plan (MEP) provides to the employer is something that almost all the financial intermediaries selling their wares in retirement plan business would never DARE to offer….and that’s the removal of the employer as both Plan Sponsor and Plan Trustee. Under the MEP, Today’s employer would not have to serve as Plan Sponsor or Plan Trustee.

The way it works is simple. If you’re an employer who offers (sponsors) a retirement plan to your employees, and as part of that offer you agree to handle their money in a proper, prudent fashion, then you become a “fiduciary” [ from the Latin fiducia, meaning “trust,” a person who has the power and obligation to act for another (often called the beneficiary) under circumstances which require total trust, good faith and honesty].

“Total trust, good faith, and honesty”……For employers looking for help in carrying-out their fiduciary responsibility, the list of organizations that can provide these services in “total trust, good faith, and honesty” are very few. By contrast, if you mentioned “Big Banks” or “Wall Street” to your neighbor, I doubt you’ll hear back the words “Total trust, good faith, and honesty” in any flattering fashion.

Either knowingly, and oft times unknowingly, the employer who offers that retirement plan also agrees to enter into another business…..and that’s the exacting business of handling other people’s money.

Now when I use the term “offer”, I mean to formally adopt a program to provide retirement benefits under ERISA. There are Non-ERISA based plans where this meaning of “offer” doesn’t necessarily apply to the employer. So when I say “offer” and “sponsor”, I’m referring to plans that qualify under ERISA.

Going back 15-20 years ago, many employers started offering their employees a retirement plan so that both the employer and employee could put away money for the employee’s benefit. With every good intention comes unintended consequences. The employer’s offer to provide retirement benefits, becomes a “program” that is highly regulated with legal plan documents, required tax filings, annual testing of employee wages, and complicated investment offerings in which employees may (but often not) make good choices.

Unlike other types of employee benefits offered to employees, the defined contribution retirement plan maintains a history and a “legislative life” of its own, starting from the day it was first put into place by the employer. While providers, investments, reports, and features may change with the retirement plan over time….what remains constant is the fact that the employer is still making that “offer” to his employee, and hence the employer is still being held accountable as a plan sponsor and fiduciary under the law.

Looking at another type of employee benefits, healthcare insurance, the employer certainly enters into agreements with providers for his employee, they do collect money from employees to help pay some of the costs, and they do timely remit payments to providers to ensure the agreed-to service is provided, when needed. The key difference is that the contract to provide these healthcare services typically last only from year-to-year. How the employer handles and remits the monthly premium to the insurance provider doesn’t have much of a self-life. It’s often the case that if you don’t pay the required premium in 90 days, the provider can take steps to cancel their agreement. However, the duties for an employer’s handling of employee’s retirement savings and contributions (even as long as three years-ago) can often be the subject of regulatory inquiry from both the Department of Labor or the IRS.

Simply put, the employer’s task of handling a yearly healthcare insurance contract for an employee is certainly important, but does not demand the rigors of fiduciary care typical of someone handling another person’s entire retirement savings. The fact remains that being a fiduciary is the highest standard of care as defined in the law.

Which brings us back to why Multiple Employer Plans (MEP) are now starting to look more attractive for employers.

Under a MEP, the employer can get out from under their plan and instead join the MEP. The employer would elect to merge their current plan with a MEP plan that’s already established, and he would join other employers in this plan. The employer would no longer serve as “Plan Sponsor” or as “Plan Trustee”, and the vast cumbersome duties and fiduciary liabilities that are related to being “Plan Sponsor” and “Plan Trustee” would be conveyed to the Plan Sponsor and Trustee of the MEP. This new Plan Sponsor and Trustee is typically someone with years of experience in the business, with a clear mission to handle the MEP with the utmost integrity and clarity of purpose.

Under the MEP, the employer would just be a passenger, flying First Class, as opposed to being the pilot and having to make sure that all passengers safely reach their final destination. The duties of a pilot vs. those of a passenger could not be more distinct, whereas the outcome remains the same for both….and that is to reach their final destination (retirement) without incident.

My instinct and experience tells me that employers would much rather ride in the plane, than have the responsibility (and liability) to fly the plane as its pilot. However, employers continue each day to serve as the “Fiduciary Pilot” for their retirement plans…going through the due-diligence checklists, constantly checking the plane’s mechanics. and ensuring that each passenger understands the trip ahead and what they need to do to reach their final destination (retirement).

The MEP allows employers to choose a highly qualified, well-trained, and experienced pilot to fly the plane…so they can get back to running their core business and making customers happy with their products and services.

For questions on the above, please call me at 585-641-7243