By design, MEPs allow small employers to pool participants and assets into one plan, creating economies of scale that lower the cost of providing and administering a plan.

In limiting employers' costs and human capital requirements, MEPs encourage plan adoption among small businesses. And by creating economies of scale, participants get access to the less expensive investments available to larger plans.

In the Labor Department's 2012 opinion, regulators effectively said that each sponsor in an Open MEP — those plans consisting of employers that don't share an industry nexus or commonality — will be treated as a single employer under Title I of the Employee Retirement Income Security Act.

Participation discouraged

Upon issuing the opinion, sponsors in Open MEPs became required to file individual Form 5500s and conduct annual plan audits. Under Closed, or Association MEPs, where pooled sponsors meet the Labor Department's nexus requirement, only one Form 5500 and one plan audit are required for all included sponsors.

Kais testified to the effect of the Labor Department's 2012 opinion. In the case of one MEP client of Transamerica's, sponsor participation had risen from 100 employers to 1,300, but was effectively halted after the Labor Department issued its advisory opinion.

"The rules around commonality are extremely gray," said Kais, who said that reality can even deter some businesses that may qualify under the Labor Department's nexus requirement from participating in a MEP.

"I contend with it on a daily basis," he added, suggesting the rule is too esoteric for many small-business owners to grasp. Transamerica is recordkeeper to 280 MEPs accounting for 11,500 employers, nearly 600,000 participants, and more than $18 billion in retirement assets.

Kais called on Congress to eliminate the commonality requirement of MEPs so that more small employers can be encouraged to offer workers retirement plans.

Kent Mason, a partner in the law firm Davis & Harman LLP in Washington, D.C., also called on eliminating the commonality requirement. As is, the requirement that sponsors in Open MEPs file individual Form 5500 reports "can mean the difference between sponsoring and not sponsoring a plan" for many small employers, said Mason.

President Obama's fiscal year 2017 budget also called for the elimination of commonality requirement for MEPs.

Current system 'broken'

Sen. Elizabeth Warren, D-Massachusetts, who co-hosted the roundtable with Sen. Michael Enzi, R-Wyoming, conceded that the question of the Labor Department's commonality requirement needs addressing, but cautioned against haste in crafting a new law or regulation.

"Republicans and Democrats agree that the current system is broken — the current structure of federal law is inhibiting more small businesses from offering these plans and negotiating to get the best plans," said Warren.

"But we can't just say 'multiemployer' and then we are done," she added.

Before legislation moves forward, Warren called for clear distinctions to determine the entities best suited to sponsor MEPs.

Michele Varnhagen, senior legislative representative at AARP, testified that to date, proposed legislation to eliminate the commonality clause has failed to define what group or organization would qualify as a sponsor of MEPs going forward.

If Congress and the Labor Department allow financial services firms to sponsor MEPs, as some do under existing regulations, "additional protections and oversight" will be needed, said Varnhagen.

She called on Congress to require all sponsors of MEPs to serve as fiduciaries. In lieu of that, Varnhagen said Congress or regulators should set a cap on the fees that can be charged on MEPs, between 75 and 100 basis points.

"Once they (financial services firms) sponsor MEPs, it opens the door to conflicts of interest," Varnhagen told the roundtable. "We're a little nervous if a financial advisor is the sponsor and they only represent one company's products."

Sen. Warren homed in on AARP's concerns. "That kind of starts to sound like a conflict of interest, potentially," she said.

Mason and Transamerica's Kais were both quick to distinguish the potential providers and sponsors to MEPs from the unbiased third-party entities they said should be overseeing the plan.

"Financial services companies do not seek to be the ones setting up the plan, and they shouldn't be the ones setting up the plan because they shouldn't be the one overseeing the plan themselves," said Mason.

"They look for that independent third-party" to oversee the plan, he said. "Because that's the way the structure works."