Unlocking the Benefits of Multiple Employer Plans (MEPs) for Organizations

A new kind of workplace retirement plan is quickly gaining momentum as a way to help employees save for their golden years. More and more companies are turning to a Multiple Employer Retirement Plan (MEP) to reduce costs, administrative burden and fiduciary risk.

What is a Multiple Employer Plan (MEP)?

A Multiple Employer Plan (MEP) is a retirement plan that allows two or more unrelated employers to join together under a single plan umbrella. MEPs are typically sponsored by a third-party organization, known as the plan sponsor, which assumes much of the administrative and fiduciary responsibilities associated with managing the plan. This structure enables participating employers to pool resources, share costs, and reduce the administrative workload associated with offering a retirement plan.

1. Cost Savings through Economies of Scale

One of the most significant benefits of participating in a MEP is the potential for cost savings. By pooling resources with other employers, organizations can benefit from economies of scale, resulting in lower overall plan costs.

• Reduced Administrative Costs: In a MEP, many of the administrative functions, such as recordkeeping, compliance testing, and plan reporting, are centralized and managed by the plan sponsor. This reduces the need for each participating employer to maintain extensive administrative resources.
• Lower Investment Fees: A larger asset pool in a MEP often leads to better negotiation power with service providers, resulting in lower investment management fees. These savings can enhance retirement outcomes for employees by reducing investment expenses.
• Shared Service Provider Costs: Costs for services like financial advisory, legal counsel, and audits are typically lower in a MEP due to the collective bargaining power of multiple employers. Sharing these costs further reduces the overall expenses for participating organizations.

2. Reduced Fiduciary Risk

Managing a retirement plan involves significant fiduciary responsibilities (See our previous article on Fiduciary Responsibility), which can be daunting for employers. Fiduciaries are legally required to act in the best interests of plan participants, and failure to do so can result in legal and financial consequences. Participating in a MEP can help organizations reduce their fiduciary risk in several ways.

• Delegation of Fiduciary Duties: In a MEP, many fiduciary responsibilities are transferred to the plan sponsor or a designated fiduciary. This delegation eases the burden on participating employers, as they no longer need to oversee the day-to-day fiduciary management of the plan.
• Professional Plan Management: The plan sponsor of a MEP typically engages professional service providers, such as investment managers and third-party administrators, to oversee the plan. These experts help navigate regulatory requirements, reducing the risk of errors and potential legal issues.
• Fiduciary Liability: In a traditional single-employer plan, the employer is solely responsible for any fiduciary breaches. In a MEP, much of this liability is offloaded to the plan sponsor, helping to protect participating employers from financial and legal repercussions.

3. Streamlined Administrative Processes

Managing the administrative aspects of a retirement plan can be overwhelming, especially for small and mid-sized businesses with limited resources. MEPs streamline many of these tasks, offering significant relief:

• Centralized Plan Administration: In a MEP, the plan sponsor handles most of the administrative tasks, including lead plan design, recordkeeping, and compliance testing. This centralization simplifies plan management for participating employers, allowing them to focus on their core business operations.
• Simplified Plan Reporting: MEPs typically file a single Form 5500, the annual report required by the Department of Labor, on behalf of all participating employers. This eliminates the need for each employer to file separate reports, reducing administrative work and potential errors. For audited plans, the plan audit would become the responsibility of the plan sponsor, saving significant time and cost for employers.
• Ease of Employee Enrollment: MEPs often provide streamlined enrollment processes, making it easier for employees to participate in the plan. This can lead to higher participation rates and improved retirement outcomes, which ultimately benefits employers by enhancing their ability to attract and retain talent.

4. Plan Design Flexibility

Another advantage of MEPs is the ability to customize retirement plan design to meet the specific needs of each participating employer:

• Tailored Plan Features: While MEPs are shared plans, they often allow for some level of customization. Employers can choose different matching structures, vesting schedules, and eligibility requirements to best meet the needs of their workforce.
• Access to Professional Advice and Education: Many MEPs include access to financial advisors who can provide personalized guidance to employees. This support helps employees make informed decisions about their retirement savings, enhancing overall value.

5. Regulatory Compliance and Risk Management

Navigating the complex and ever-changing regulatory landscape of retirement plans can be challenging. MEPs provide robust support to help organizations stay compliant:

• Expert Compliance Oversight: The plan sponsor of a MEP typically employs compliance experts who stay up-to-date with the latest regulations and ensure that the plan adheres to all legal requirements. This reduces the risk of costly compliance errors for participating employers.
• Shared Compliance Responsibility: Just as fiduciary risk is shared in a MEP, so too is compliance responsibility. This shared oversight helps mitigate the risk of regulatory penalties and audits.
• Access to Legal Resources: Many MEPs include access to legal counsel who can provide guidance on complex regulatory issues. This support can be invaluable in helping employers navigate the intricacies of retirement plan compliance.

Conclusion

For organizations looking to reduce plan costs, fiduciary risk, and administrative work, participating in a Multiple Employer Plan (MEP) offers numerous benefits. By pooling resources with other employers, organizations can achieve significant cost savings through economies of scale, reduce their fiduciary and compliance risks, and streamline their administrative processes. Additionally, MEPs provide enhanced plan design flexibility and access to professional expertise, making them an attractive option for businesses of all sizes.

At Alesco, we have implemented these plans successfully for associations, affiliated employers, and companies with various legal entities to simplify and optimize their retirement plan offerings. Reach out today to discover how a Multiple Employer Plan could benefit your organization!

Disclaimer: The content in this blog post is provided for informational purposes only, and should not be construed as personalized investment advice.