Employers would not be fiduciaries in Open MEPs
Under proposed legislation, fiduciary plan providers would have to register with the DOL.
Legislation referred to the Senate Finance Committee would dramatically amend the Employee Retirement Income Security Act by allowing small employers to offer retirement plans without being fiduciaries.
Under ERISA, all plan sponsors, regardless of the size of businesses or assets in a plan, are fiduciaries.
But the Small Business Employees Retirement Enhancement Act, introduced by Sen. Tom Cotton, R-AK, would let employers with fewer than 100 employees offer multiple employer plans—also known as pooled employer plans—and exempt them from fiduciary status.
Related: Participants and HR will love the MEP 401(k)
Instead, providers of MEPs would be named fiduciaries. The plans would have to register with the Labor Department; the bill instructs Labor to create a website of registered plans from which employers could select fiduciary providers.
If employers want to avail themselves of the fiduciary exemption, they will have to select a provider from Labor’s website, effectively making the Department the gatekeeper to millions of potential new plan participants.
Once a registered plan is selected by an employer, they “shall not be treated as a fiduciary with respect to such plan, including with respect to the selection or monitoring of any plan service provider or any investment under the plan,” according to language in the bill.
The bill removes the “common interest” requirement under existing regulations, which insulate employers in MEPs from fiduciary liability, but only if the employers share a common nexus, such as membership in a trade organization.
It also removes the existing “one bad apple rule,” which holds all employers in a pooled plan accountable for the actions of a single non-compliant employer.
Banks and insurance companies will be able to sponsor pooled plans, as long as they have equity capital in excess of $1 million.
Registered investment advisory firms will need more than $85 million in assets under management to serve as a fiduciary sponsor of a pooled plan.
While employers in qualified pooled plans would not be fiduciaries, the proposed law still requires them review plan fees at least annually to assure they are “reasonable,” comply with plan enrollment requirements, and remit contributions to the plans.