Multiple Employer Plan 401(k)
posted by Fisher 401(k) December 10, 2019
A Multiple Employer Plan, or MEP, is an employer sponsored retirement plan for businesses that are part of an industry association offering a 401(k) plan as a benefit to members. The Internal Revenue Service (IRS) and Department of Labor (DOL) recognize a “MEP” as a type of 401(k) plan in which a group of unrelated companies (meaning companies with no common ownership interest, or a very small one) elect to participate in a single 401(k) plan. Here is a guide to MEPs for industry associations who are considering expanding their retirement benefit options.
What is a Multiple Employer Pension/Retirement Plan?
The IRS and DOL recognize a special kind of multiple employer 401(k) plan called a “multiple employer plan.” A MEP—sometimes referred to as an “association MEP”— is intended to provide groups of companies, like industry associations, the ability to offer a single 401(k) plan to their members, different from a 401(k) controlled group.
How do the IRS and DOL determine who is eligible to offer a MEP?
The MEP model is designed specifically for groups of companies that are already joined by some common cause, like members of an industry association. MEPs can work well for industry associations because these groups have an established history of shared interests and are often supported by a staff that works full-time in service of the association membership.
There are three key indicators that a MEP might be a great fit for your industry association:
1. Your industry association qualifies as a “bona-fide” Association.
Companies that qualify to establish a MEP are already connected in some way, and there is some sort of economical or representational function of their association beyond the simple desire to offer shared benefits. From the regulator’s perspective, a nexus qualifies an association as “bona-fide,” and therefore eligible for a MEP. Does your association have a staff that manages things like publications or events for your members? Do your members vote on issues and collaborate on lobbying activities or educational programs for employees? If the answer to any of these questions is, “Yes,” your association might qualify as a bona-fide organization to start a MEP.
2. A MEP can help your industry association reach its goals.
Is your organization focused on growing your membership base and retaining your current members? If so, you’re not alone—these are two of the most important goals for most industry associations. A MEP can be a great incentive for businesses to join your organization, as only official members can join the plan. Additionally, employers will have another great reason to remain members in your association when you support their employees’ retirement benefits.
3. Your association is interested in overseeing a MEP.
Often small employers lack the know-how to offer and support their own 401(k) retirement plan. Under your MEP, the association provides either directly or through service provider support, the set-up and management of the plan. Working with your service providers, you ensure every member employer who chooses to participate will comply with the rules, and regulations and that the plan is run successfully.
What are the Benefits of participating in a MEP for member employers?
When an industry association adopts a MEP, it can benefit member employers who choose to join in many ways. Should you decide to offer a MEP, here are some of the benefits your member employers will enjoy:
- Shift of fiduciary liability: A MEP isn’t a magic wand to wave away employer 401(k) fiduciary responsibility, but it does share the daily plan responsibilities. As the association managing the plan, in coordination with your service providers, you take on a lot of the heavy lifting. Even so, the employers who join the MEP maintain the fiduciary responsibility to review the decision to join the MEP 401(k) regularly. In turn, you can take the lead keeping costs reasonable and services competitive.
- Increased negotiating power: Aggregating many of your member employers into a single plan has the ability to deliver economies of scale typically enjoyed by much larger plans. This has the power to lower fees and improve service levels.
- Reduced administrative burden: Since MEPs are designed for multiple participating employers as a single plan, you as the plan sponsor manage the ongoing day-to-day tasks. Further, as a single plan there is only one required plan audit (when greater than 100 eligible employees) and Form 5500 tax filing—streamlining overall administration and costs. So while audits will still be a part of plan management, that responsibility shifts to you—meaning your members no longer have to worry about handling that work themselves.
- Attractive benefits: For employers who join an association and don’t already offer retirement benefits, this is a huge leap forward, giving them the ability to offer competitive retirement benefits that may outshine those offered by competitors who maintain their own plans.
- Higher level of service: For employers already involved in an industry association, it’s clear there is already some value to joining with similar businesses for a variety of reasons. This extends to a MEP, which can be customized to provide services that specifically fit the needs of employers and employees in a specific industry, like one-on-one financial counseling for employees or access to lower-cost investment options. Since we know that many employers believe there is a better 401(k) plan available, joining an industry association MEP might be a great way to get a better plan for employer and employee alike.
Open MEP vs. Closed MEP vs. 81-100 Group Trust
Within the framework of existing legislative rules, there is no opportunity for an “Open MEP” according to the IRS and DOL. However, recent legislative bills like SECURE1 and RESA2 have been making their way through Congress aiming to make the “Open MEP” a viable retirement plan. It’s not yet certain what shape either of those bills may take before they become law.3 While the phrase “Open MEP” has been adopted by the industry as a result of this pending legislation, there is technically no such thing.
This is different from a “Closed MEP,” which refers to what is known today a MEP. Under Section 413(c) of the IRS code, companies with a nexus are permitted to join together in a pooled retirement plan—in some cases. A core requirement is the retirement plan is sponsored and administered by a third party (like an association).
Alternatively, group trusts (sometimes called 81-100 group trusts or master trusts) allow each individual employer to maintain their individual plans while pooling only the assets together in a single trust. This creates some economies of scale, often resulting in lower investment costs, opportunities for improved share classes, and some cost savings around plan service.
Does Joining a MEP Mean Anything Different Than a Traditional 401(k) for Employees Who Participate?
Because an association represents a large group of employers and their employees, the association often can negotiate plan fees—fees that are typically passed on to employees. This means employees can keep more of their savings invested and growing in their 401(k) accounts. However, the day-to-day experience of an employee saving into a 401(k) account that is part of a MEP will feel the same as if they were participating in a standard 401(k) plan.