The DOL's MEP proposal: Is Labor picking winners?

The Labor Department’s proposal to broaden access to workplace retirement plans by way of Multiple Employer Plans does not include a pathway for so-called Open MEPs, which allow small business owners with no shared business association or interest to pool workers under one defined contribution plan.

The proposal aims to clarify a 2012 sub-regulatory action by the Obama administration that required employers to share commonality, or a nexus, such as membership in a trade organization, in order to benefit from the full administrative and fiduciary relief MEPs promise.

Labor’s proposal continues that policy. But it also extends employer participation in MEPs to unrelated businesses within the same state or municipality.

In doing so, the proposal opens the door for local chambers of commerce to sponsor retirement plans for their members.

Though it stopped short of rubber-stamping Open MEPs, which would not limit participation to locality, Labor said that it considered the option, “but decided not to include such categories of MEPs in the proposal because they implicate different policy concerns.” Labor did not expound on those concerns.

Several legislative proposals in recent years green-light Open MEPs, a fact acknowledged in the proposal.

Still, in leaving out Open MEPs, Labor can expect stakeholders to ask why.

The Department’s policy concerns are difficult to surmise, said Aron Szapiro, director of policy research at Morningstar.

“There is a reason people have been trying to get Congress to act on this issue,” Szapiro told BenefitsPRO. “The way ERISA (the Employee Retirement Income Security Act) is construed, I don’t think Labor believes it can go to full Open MEPs without Congress acting. Without affirmative Congressional action, I don’t think they feel they have the legal authority.”

By Szapiro’s read, the proposal is the largest expansion possible given Labor’s limited authority, which regulators reference in the document.

“The Department’s proposal is more limited because it relies solely on the Department’s authority to promulgate regulations administering title I of ERISA,” the proposal explains. “Unlike the Department, Congress has authority to make statutory changes to ERISA and other areas of law that govern retirement savings, such as the Internal Revenue Code.”

Szapiro, and Morningstar, have been champions of leveraging Open MEPs to address both the plan access gap and cost inefficiencies in the existing small-plan market.

But he cautions against irrational expectations, even in the context of fully Open MEPs. Labor’s more limited proposal should further temper expectations.

“We don’t think MEPs will radically change the U.S. retirement system—we need to be realistic about what they can accomplish,” Szapiro said. “Because the proposal is limited, we don’t think it will move the needle a lot. Still, there is no reason not to do them.”

“Love fest” for PEOs

If Congressional action is required to create Open MEPs, it is not required to close them.

Labor instituted the commonality requirement in 2012 absent input from Congress. In fact, the action was done outside the more thoroughgoing rule-making process — it was created in an advisory opinion letter.

Troy Tisue, president of TAG Resources, a fiduciary provider of MEPs, thinks Labor’s proposal raises more questions than answers, and fails to follow President Trump’s executive order, which established the expansion of workplace retirement plans as formal federal policy.

“Commonality is not a law—Labor made that up in 2012. It was an interpretation, not an act of Congress,” said Tisue, whose inquiry to the Labor Department was the genesis of the advisory opinion.

“Labor is choosing to do this very selectively, which is curious,” added Tisue.

The proposal explicitly prohibits retirement industry service providers — recordkeepers, broker-dealers, insurance companies, third-party administrators, and potentially firms like TAG Resources — from sponsoring MEPs.

“Labor doesn’t feel they have the authority” to effectively anoint MEP provider channels, explained Morningstar’s Szapiro.

But even as the proposal prohibits retirement industry service providers from sponsoring MEPs, it gives a forceful endorsement for Professional Employer Organizations, or PEOs.

PEOs serve as outsourced human resource departments for businesses, handling payroll and benefits administration, among other things. Under the proposal, a PEO would be able to offer MEPs, but only to businesses that use its administration services.

“If Labor doesn’t have the authority to remove commonality requirements for MEPs, then why can they be so restrictive on who can provide them,” said Tisue, who founded TAG and has been exclusively providing MEPs for nearly two decades.

“It’s a love fest for PEOs,” Tisue said of the proposal. “Labor doesn’t provide any clarity into that.”

The proposal limits what MEPs can do to address the retirement plan access gap, thinks Tisue. Employers that don’t sponsor a plan, don’t use a PEO, and are not chamber members, will have to pay for outsourced HR services from PEOs, or join their local chamber to join a MEP.

“I don’t know that that will expand participation in retirement plans,” said Tisue.

“Labor missed the mark on this one, and I suspect that will be raised in comments. The proposal seems rushed, and inconsistent with Asst. Secretary (Preston) Rutledge’s previous work on MEPs. However, Labor might be offering a limited solution based on current regulation as they wait for Congress to act,” added Tisue.