Answering 401(k) MEP questions – Carosa
It’s not what businesses know they know about 401(k) MEPs, it’s what they don’t know they don’t know about 401(k) MEPs.
No fancy prose this week. No pop culture allusions. Just the straight dope. But first, a disclosure: Besides reporting on this subject for some time now, several years ago, I helped a business association create a 401(k) MEP or multiple employer plan. I worked with several different service providers and researched plenty more. This was not an “Open MEP,” but a true MEP. Unlike Open MEPs, in a true MEP the underlying plans were not required to continue to operate as if they were a separate plan.
Within the last month, two things have occurred which have spurred concentrated interest in MEPs. The DOL has acted on President Trump’s executive order and submitted their MEP proposal to the OMB. In addition, there has been a legitimate push in Congress towards broadening the definition of “true MEP” to include Open MEPs. Now more than ever, companies want to know more about the MEP (see “What Every Company 401k Plan Fiduciary Needs to Know about MEPs,” FiduciaryNews.com, September 25, 2018).
I wasn’t surprised, then, when I was asked by a business association to present to them the “who-what-where-why-and-how” of 401(k) MEPs plans. The group is a trade association comprised of just under one hundred small companies.
Several of those companies already have their own stand-alone 401(k) plans. Many don’t even have a retirement plan and consist of husband and wife owners and maybe a couple of employees. For some of the owners, they expect the business to fund their retirement. We all know how that goes.
In a way, it was a refreshing opportunity. I was careful to limit my prepared remarks, so the bulk of the time could be used to answer specific questions.
Why was this strategy important?
As a journalist specializing in the trade, I’m immersed in all the nitty-gritty details. I don’t include them all in my articles (because my writing is boring enough already), but I need to know them in order to make sure the story has some heft behind it.
There comes a point where you not only see just the trees, but you know all their names. Typically, though, companies first looking into the 401(k) MEP concept only want to get a feel for the forest. If you start mentioning the trees on a first-name basis, you’ll lose the crowd.
Instead, by focusing on their questions, you virtually guarantee you’ll be addressing their real agenda, not some arbitrary outline you developed for your presentation.
I learned a lot doing this.
I learned one of the biggest concerns was “Can my company leave the MEP if things change?”
The simple answer is yes. Of course, as with most answers, it all depends on the specifics of the particular plan design.
Another popular question is “Can I keep my current service provider (e.g., recordkeeper, investment adviser, or even investment options)?”
The answer here is “probably not.” The bottom line: If you’re going to delegate a significant portion of your fiduciary liability, you’re also going to delegate the decision-making that creates that fiduciary liability.
Speaking of fiduciary liability, I learned a lot by what wasn’t asked. There’s often a mistaken belief that a 401(k) MEP eliminates all the company’s fiduciary liability. In fact, while much is transferred to the MEP plan sponsor, the participating company retains responsibility for the initial movement of money from the company coffers, through the payroll processor, to the retirement plan. The liability here is exactly the same as if the company has its own standalone plan.
That’s just a snippet of the discussion. I’d divulge more details, but I fear that would just bore you.
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