Embrace small plans before it’s too late
If you’re not in the 401(k) MEP game, the curtain is closing fast.
On July 31, 2019, the DOL published a Field Assistance Bulletin regarding their final regulations on the establishment of 401(k) multiple employer plans (MEPs). It’s not a perfect solution (although Congress may pass one by the time you read this). Still, it’s a viable solution that makes the 401(k) MEP a more palatable option for plan sponsors too busy to take the time to understand all the compliance intricacies of the 401(k) environment.
If you’re not in the 401(k) MEP game, the curtain is closing fast. There may not be much you can do in some circumstances, but there is something you can do in at least some cases.
Related: Small employers: Look before leaping into new MEP 401(k) option
This recommended strategy is predicated on one very important assumption: You have existing small-business 401(k) clients who like you. I don’t mean they like your product or your service; I mean they like you as an individual. And they’ll be reluctant to give up that relationship unless the offer is too good to be true.
Small-business owners either want to keep their hands on things (even when it makes more sense for them to delegate) or they want to keep their hands off of things (even when it makes more sense for them to stay involved).
In both cases, you can offer something to counter the lure of the 401(k) MEP when it comes calling.
If your small-business client insists on making all decisions when it comes to the company’s 401(k) plan, then the 401(k) MEP may not be the preferred solution. With a 401(k) MEP, the current plan sponsor will be required to delegate nearly all duties.
They might, however, be momentarily swayed by the idea of also delegating a significant portion of their fiduciary liability. Still, they just don’t want to give up control, and that’s what they base their decision on.
You can swoop in and offer a compromise they might find appealing. By suggesting you take on a formal 3(21) role, you’ll be offering to act as a co-fiduciary in a way that takes some of the weight off their shoulders while allowing them to retain final approval authority on any suggestions you make.
On the other hand, let’s look at those small-company owners who jump at the idea of delegation. You can’t equal the benefit of the 401(k) MEP, but you can come close.
This is where the closeness of your relationship becomes key. You’ll need to convince your client the marginal value of a 401(k) MEP cannot make up for the cost of losing the comfort of the existing relationship.
How do you shrink that marginal value so it is only marginal? You offer to act as a 3(38) advisor. Here, you not only take on much of the decision-making for the plan, but you also take on the vast bulk of the liability.
This, and an equally competent recordkeeper, will make it much harder for the 401(k) MEP to influence the harried small-business owner.
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