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One provision in the currently-debated Setting Every Community Up for Retirement Enhancement (SECURE) Act concerns Open Multiple Employer Plans, but while such MEPs present an opportunity for some small businesses, a new white paper from Massachusetts Mutual Life Insurance Company warns that they aren't the answer for everyone.
The white paper, Open Multiple Employer Plans: What Open MEPs May Mean for Your Business, points out that plan design options may be limited under the proposed legislation, since one of the bill's purposes is to streamline the process of offering and maintaining a retirement plan.
That could mean that such a plan may not be as effective in enrolling employees, encouraging savings and getting workers ready to retire "on their own terms."
In addition, another issue to be considered is whether to follow a hands-on or hands-off approach to plan administration. Joining with other companies to offer a plan may mean that the group's use of a third-party administrator would be most helpful in handling all the intricacies of such a plan without the need for small businesses to get down in the weeds to make it work.
There may also be limitations on the investment choice menu, since ease of administration could require more limited options than could be available otherwise—but being able to combine assets into a single MEP could also allow the plan to take advantages of economies of scale and gain access to "lower-cost funds typically available only to larger companies with greater assets and more purchasing power."
With a MEP, fiduciary oversight can be handed over to a 3(38) investment manager, rather than a 3(21) fiduciary service, which actually leaves employers still on the hook for discretion, authority and fiduciary liability for fund selection.
Taking all these things into consideration, small companies will have to decide whether participating in a MEP will provide more benefit than handicap, based on their individual circumstances.
"Open MEPs could expand access to retirement plans significantly," says Bob Carroll, head of workplace distribution for MassMutual, "But it ultimately pays to understand how to make the most of the available opportunities, especially when it comes to joining an Open MEP."
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
