Retirement Plans Q&A: New Developments in Multiple Employer 401(k) Plans

Published:

Authors:
John Bartels, Managing Director, Retirement Plans & Insurance Services
Howard Essner, JD, General Counsel, Family Wealth & Retirement Plan Advisor
Bill Koenig, JD, MBA, Director, Retirement Plan Advisor


With new developments emerging in the Multiple Employer 401(k) Plan marketplace, we sat down with John Bartels, Howard Essner, JD and Bill Koenig, JD from Ancora’s Retirement Plans division for an update.

Q: We’ve heard a lot about Multiple Employer Plans in the news lately. In a nutshell, what are they?

 A: A Multiple Employer Plan (“MEP”) is a type of retirement plan that is adopted by two or more employers that are unrelated to each other for income tax purposes. A MEP is maintained by the adopting employers to pool investments and share administrative costs while offering separate accounts for each adopting employer. 

Q: Why are we hearing about MEPs more recently?

A: Recently introduced regulations could help small businesses provide their employees with a retirement plan. In short, these rules make it easier for non-related employers to band together and enjoy the economies of scale seen by larger plans and reduces the liabilities of each participating employer in terms of plan testing.

Over this past summer, the U.S. House of Representatives passed the SECURE Act, which, among other provisions, would make Open MEPs qualify as employer-sponsored plans under ERISA, just as Closed MEPs always have. Although the SECURE Act has not yet passed the Senate, these positive trends have increased interest in MEPs in the retirement plan community.

Q: Why might a MEP be of interest to a 401(k) plan sponsor?

A: A MEP fills the gap for small businesses who may not otherwise be able to offer a retirement plan due to the workload, costs or fiduciary liability. Benefits of a MEP include:

  • The ability to entice top-level talent and retain staff with a retirement benefit
  • Economies of scale to spread costs among participating employers
  • Flexible plan design elements for each employer
  • Professionally administered plan reduces fiduciary responsibility for the employer and streamlines reporting & disclosure requirements
  • Reduced fiduciary responsibility with investment selection and monitoring by an experienced investment manager
  • More time to focus on your business needs
  • Education services for your employees

Q: Are MEPs a new concept?

A: No, MEPs have been around even before laws that governed their structure existed.

“Closed” MEPs, available only to employers with some form of qualifying relation to one another, have perhaps been the most common or recognizable MEP structure. In contrast, we are focused on “Open” MEPs, where the participating employers are not related in any way. While Open MEPs are not new, recent legislation has made them more attractive and accessible to employers than they were previously.

Q: What is Ancora doing in this space?

A: Because of the positive legislative and regulatory trends, Ancora recently decided to move forward in creating the Ancora MEP, an Open MEP effective December 2, 2019. Ancora has contracted with Newport Group for the administration of the plan. Newport Group is one of the country’s largest independent retirement plan administrators and recordkeepers and has significant experience in the MEP market.

There are three key parties to the Ancora MEP. First, Ancora acts as the MEP Sponsor. Second, Ancora’s Retirement Plans division acts as an ERISA 3(38) fiduciary for the investment menu, meaning that we take full discretionary authority as a fiduciary for the MEP investment options. Third, Newport Group acts as an ERISA 3(16) fiduciary for administration of the plan, meaning it takes full fiduciary responsibility for the operations of the plan.

With this structure, other companies can adopt the Ancora MEP for their 401(k) needs to reduce their fiduciary liability, get access to a well-designed fund menu, design certain aspects of their plan and get the benefit of the economies of scale of participating in a plan with significant assets.

Q: Is a MEP right for every company?

A: A MEP may be more beneficial for smaller employers with roughly less than 200 employees and less than $7M in plan assets, as an example.

A company might choose not to adopt a MEP if they are satisfied with their current service providers and fee structure or have the desire to offer certain investment choices not included in the standard fund menu of the Ancora MEP.

For plans that are perhaps too large to adopt the MEP, Ancora may be able to offer a customized solution that includes similar full fiduciary protection as found in the Ancora MEP, in a more cost-effective manner on a stand-alone basis.

Q: Is the MEP Ancora’s only retirement plan solution?

A: No, the Ancora MEP is just one of our service offerings. We act as the fiduciary investment advisor for more than 130 employer sponsored retirement plans with a variety of plan types.

Q: If a current 401(k) plan sponsor wanted more information on MEPs, how should they proceed?

A: Any interested plan sponsor can contact their Ancora relationship manager, John Bartels, Howard Essner, JD or Bill Koenig, JD at Ancora.

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