How Open MEPs Became One of the Best Retirement Options You Haven’t Heard About

What if there was a better alternative to traditional 401(k)s? When the average American thinks of how to prepare for retirement, a few financial options come to our minds. 401(k)s and IRAs have been at the forefront of the retirement industry since the late seventies/early eighties, but they were not the first (nor are they always the best) options when it comes to planning for your (or your employees’) retirement. Let us introduce you to the Open MEP.

THE BEGINNINGS OF MEPS

The Multiple Employer Plan (MEP) has been around since the early 20th century and has a host of benefits that you should consider when determining what type of retirement plan you want to offer your employees. 

A MEP consists of a group of companies/organizations that have joined together to offer retirement plans to their employees. By sharing resources, each participating employer experiences savings vs. offering a traditional 401(k). MEPS date back to early last century when employers (usually around a specific trade) would join together to offer plans to their employees. 

THE RISE OF OPEN MEPS

As MEPs evolved, groups of un-linked employers—often called Professional Employer Organizations (PEOs) or simply co-employers—began to join together to offer MEPs to their companies’ employees. This practice brought in all kinds of legal problems and began to be questioned by the IRS.

MEPs have gone through a variety of legal changes. In 2002, the IRS mandated changes to the MEP structure, and a DOL ruling in 2012 opened the door for Open MEP’s to come into their own. These “open” MEPs introduced a fresh, new approach which allowed even more business owners the opportunity to provide 401(k) plans for their employees.  These changes have ultimately led to a door being opened so that today with Open MEPs, businesses have a great option to offer a retirement program that costs less than traditional 401(k)s.

Open MEPs are fee-based, qualified 401(k) retirement plans that permit unaffiliated employers to opt into a retirement plan sponsored by an outside entity that bears responsibility for administering the plan 

“Although Open MEPs are being discussed as something new, they are clearly a continuation of the established MEP plan structure. The advantages they offer should be a consideration for any employer exploring their fiduciary and administrative options.”
Fred Reisch, Partner Drinker Biddle

CURRENT LANDSCAPE

The history of Open MEPs isn’t an artifact of the past. Right now is an exciting time for Open MEPs! A reiteration of the Retirement Savings and Enhancement Act (RESA), the provisions of which would fully allow for multiple employer plan (MEPs) use by unrelated employers, was recently introduced in the House of Representatives. Beyond that, the Setting Every Community Up for Retirement Enhancement, or SECURE Act of 2019, sailed through the House Ways and Means Committee recently with a unanimous vote. This means that soon Open MEPs will be even more ‘open’ to otherwise unrelated employers and they will be around for a long time to come!

WHY OPEN MEPS ARE A GREAT ALTERNATIVE TO TRADITIONAL 401(k)s

There are a number of benefits to utilizing Open MEPs, including lowering your retirement plan expenses, reducing your liability, increasing your flexibility, and widening your talent pool. (We’ll cover these in more detail in an upcoming blog post.)

Would you like to learn more about why an Open MEP could be a great option for your business (or your client’s business)? Download our free guide, What is an Open MEP? In it, you’ll find out how Open MEPs work and why they would be beneficial for your business. If you have any further questions about Open MEPs, please don’t hesitate to schedule a discovery call to see how we at FutureBenefits of America can help you provide for your employees or clients.