Now’s the time to SECURE your MEP cred – Carosa
How can you get up to speed quickly on MEPs? Let’s break it down into 3 primary components.
If you haven’t been paying attention, then you must be preoccupied with something else. And that’s too bad, because there’s a good chance history is about to be made.
The SECURE Act promises to change the retirement industry paradigm. It will alter decades-old IRA strategies. These will be a death-by-a-thousand cuts kind of change, involving many, many small (and not so small) accounts.
But the bigger change has the potential to start more people on the road to a comfortable retirement than ever. The SECURE Act is expected to encourage the widespread use of 401(k) MEPs. And that will change even how current plan sponsors view their own 401(k) plans (see “To MEP Or Not To MEP? That is the SECURE 401k Question,” FiduciaryNews.com, December 17, 2019).
Are you prepared for the coming MEP tsunami? Do you know your ins-and-outs?
For quite some time now, the 401(k) MEP has existed in a nebulous limbo as far as the vast majority of plan sponsors and their service providers have been concerned. There’s a good reason for this. Because of regulatory tentativeness, MEPs occupied a very thin line somewhere between “legal” and “don’t go there.”
Very soon, they may be simply “groundbreaking.”
They are, however, not without risk. There are plenty of fiduciary issues surrounding 401(k) MEPs, especially the open variety (where service providers rather than independent trade associations could act as plan sponsors).
What do you need to know to get up to speed quickly on MEPs? Let’s break it down into three primary components (or maybe four, depending on how you’re counting).
1. Plan design
Probably most important is the plan design element. This is primarily the purview of the ERISA attorney. Since a 401(k) MEP is, at its very essence, a pooled retirement plan, in its simplest form all participating companies might have to select the same plan design options.
There is some wiggle room and there are alternatives should you need to wiggle more than the room allows. That’s why this is a topic for an ERISA attorney, not a journalist.
2. Plan operations
The second area that requires strict consideration deals with plan operations. This is the realm of the recordkeeper. Traditionally, in stand-alone 401(k) plans, recordkeepers have the luxury of isolating plan operations. Each 401(k) plan, while maintained on the same software system, is separate from every other plan. If there’s a recordkeeping issue with one plan, it has no bearing on any other plan.
It doesn’t work that way with 401(k) MEPs. Recordkeepers, if they want to be competitive, will need to now only run multiple companies under one system, but also accommodate multiple payroll processors, bank accounts, and, potentially, custodians.
That’s a lot of balls to juggle in the air all at once.
Granted, experienced recordkeepers already do this. But, do you know who already does this? Bundled providers. We thought we solved the fiduciary conundrum of bundled providers years ago. We may have to revisit the concept as 401(k) MEPs grow more popular.
3. Plan advisors
Finally, we have the category of service providers perhaps best known (and most written about) component. This would be the investment adviser.
Actually, it could be investment advisers – plural.
This is a twist we’re likely to see in 401(k) MEPs (because it makes a lot of sense on any number of levels).
We could have a plan-level fiduciary adviser. This provider would oversee plan investments and report directly to the plan sponsor.
On a different level, we can have company-level investment advisers/financial planners. These providers, potentially one for every participating company, would report to the individual company. They would be responsible for traditional employee education (and therefore must be on the same page as the plan-level fiduciary adviser). They could also offer personal one-on-one financial planning advice to individual participants.
In fact, don’t be surprised if we see the retirement plan adviser market evolve the same way the retail adviser market has evolved.
In the latter case, we’ve seen a separation between advisers who focused on institutional level portfolio management (i.e., mutual funds) and advisers who used the products of those institutional advisers and concentrated on retail-level financial planning.
In a similar manner, the retirement plan adviser market will have institutional advisers (plan-level fiduciaries) who retail advisers will work with to advise employees of participating companies.
What are you doing to get ready for the watershed event of universal 401(k) MEPs?
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