The ERISA Advisory Council has urged the Department of Labor to relax its rules regarding open multiple employer plans as a way of encouraging more workplaces to offer retirement plans.
In open MEPs, two or more unrelated employers can place all of their participants in one plan. Among the advantages promoted by advocates: an employer's fiduciary liability is limited to its decision to enter into the plan and to making the required contributions.
MEPs are the "ultimate form of outsourcing, since all functions can be outsourced other than those that must, by necessity, be performed by the plan sponsor," the ERISA council said in a report.
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Outsourcing was at the heart of the council's report, produced as part of an examination of how employers can do more of it in general.
"Plan sponsors can gain access to expertise and technology, achieve economies of scale, and reduce costs (through outsourcing)," the council said. "Outsourcing also permits a plan sponsor to focus on its core business rather than managing its employee benefit plans." The problem, according to the council, is that outsourcing involves a transfer of liability whose "implications are not always well defined or understood."
Before reaching its recommendation, the council heard testimony suggesting 72 percent of businesses with 500 or fewer employees do not offer a retirement plan.
Expanding access to open MEPs, it said, could address that problem by providing a cost-efficient alternative for employers that feel the expense of sponsoring a plan is prohibitive.
But barriers to open MEPs stand in the way. Specifically, a DOL Advisory issued in 2012 requires a "common nexus or other genuine organizational relationship" between employers for them to fully benefit from the regulatory relief and cost efficiencies of MEPs.
That requirement means MEPs lose much of their economies of scale, forcing their member-employers to file their own Form 5500 and conduct individual annual plan audits. Neither is required of employers in standard MEPs, which typically consist of companies with unionized workforces in the same industry.
Other barriers relate to both forms of MEPs, according to the council.
For example, a "bad apple" rule – triggered when a participating employer fails to pay its share of contributions – means other compliant employers can potentially be exposed to liability.
Existing guidelines, the council said, also fail to adequately answer the core question of whether an employer acts as a fiduciary when it adopts a MEP.
"The council believes that MEPs, including open MEPs, may prove helpful in increasing retirement plan coverage of employees who work for small business," said the report.
But not without the DOL taking action.
The council recommends the DOL consider designing sample structures for MEPs that address prohibited transactions, conflicts of interest and the question of individual employers' fiduciary role.
It also wants the DOL to develop safe harbors to protect compliant employers from assuming liability for non-compliant employers.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
