Outsourcing for Growth
As our business technology evolves, outsourcing seems to be the new paradigm. We have been able to throw off the burdens of old by allowing someone else to take care of the problem areas.
The term “cloud” has become synonymous with off-site technology. You are able to take your internal computers and now place them on a server in the cloud that can be accessed from anywhere you have internet access. This has allowed many small business owners to develop their company without the hassle of keeping up with the
The MEP—A Better Mousetrap
In the same way that the “cloud” has been able to free up technology access for the small business owners, a new breed of retirement plans is available to address the human resource side of business. That new plan is a Multiple Employer Plan (MEP). It is also known as the MEP.
The MEP has begun to gain traction in the retirement plan world because it:
- Cuts cost
- Delegates’ responsibility that normally is taken on by the small business employer
- Eliminates a direct audit with an adopting employer if they have more than 100 employees
- Allows investment alternatives normally provided for large corporate plans
The MEP is not a new plan, but the open architecture structure it has taken on today is somewhat new. MEP plans have been around for a while but mainly used by professional employer organizations (PEO’s). These PEO’s became sponsors of a 401k plan and allowed small companies to join it. The MEP plan adopters were able to enjoy the benefits of a 401k plan without having to be sponsors or trustees. This virtually eliminated their responsibilities for running the day-to-day 401(k) operations. However, the PEO model did require that you be a part of that organization. It used to require that the PEO process your payroll and other benefits.
That is no longer true.
Most small businesses like the idea of the MEP plan but do not want to give up that much control. Thanks to a new version of MEPs, the open architecture MEP, these objections are answered (with some added benefits!).
The New Open Architecture MEP
The MEP derives its structure from section 413(c) of the internal revenue code. It allows
If you are an advisor trying to break into the retirement plan area, a lot of the heavy lifting is taken care of by the administrator of the plan. It allows you to focus on education and selling the concept and be relieved of the fiduciary responsibilities of advising a plan. Let’s look at some of the benefits of an Open MEP for the advisor and the adopting business owner.
Business Owner Advantages
The advantages for the employer revolve mainly around avoiding liability. By adopting the MEP plan, you can reduce your responsibility of having a plan.
- You place the burden of monitoring the investments and the operation of the plan on the MEP sponsor.
- This simplifies things from the employer’s perspective.
- You are now allowing duties to be handled by specialized fiduciaries and eliminating the time normally spent on a plan completely of your own.
- Your liability is limited to your monitoring of being in this plan.
It really comes down to one decision: to join or not to join.
Advisor Advantages
The advantages for the advisor involve the investment platform.
It is a difficult job to monitor investments on a daily basis and also provide highly specialized attention to the participants and employer. In addition, having to prospect for further business opportunities can overwhelm even the most organized advisors. By placing employers in an open-architecture MEP, the burden of investment analysis and fiduciary liability of those investments is placed on the professional money manager hired as an ERISA section 3(38) named fiduciary. This allows the advisor to reach out to the employer as a high value-added service and investment advisor, eliminating the low-value and complicated day-to-day operations. This also allows the advisor to manage the rollovers of the adopting employer without having to deal with prohibited transaction rules.
Most importantly, it allows you as
What Does an Open MEP Look Like?
So stepping outside, what does this plan look like to the employer and advisor? An open architecture MEP:
- Will have a dedicated sponsor that takes on the fiduciary liability of monitoring the plan.
- This sponsor can add a specialized money manager that focuses on investment analysis.
- Professional money management that had been relegated to the larger plans because of the expense associated with this style of manager is now offered to the smaller plan inside the MEP.
MEPs Need a Good TPA
The last piece is a dedicated third party administrator (TPA) that is familiar with the intricacies of MEP plans. The TPA is what ties it all together and makes it a seamless package. The TPA with a strong background in MEP plans can be the deciding factor in whether a plan becomes disqualified or not. The TPA:
- Helps to keep the plan in compliance (MEP plans can be quite complex).
- Has a platform to provide a wide array of investments.
- Can provide proper reporting for the employer, participants,
and the advisor. - Can also be a great source of customer service to bring all the pieces together.
- Can also help in many cases of helping to sell the plan by explaining the details.
- Will be the intermediary for all the moving parts of the MEP plan.
Even though there may be many moving parts, the TPA can help make the plan look seamless from the outside looking in. The MEP can also be a great alternative should the administration decide to require small businesses to have a mandatory IRA for those who don’t sponsor a retirement plan. With so many looking at cost issues in our environment, a MEP plan might be the perfect fit.
FutureBenefits of America has been providing administration on MEP plans for over 10 years. FutureBenefits has been instrumental in helping set up and establish some of the largest open architecture MEP plans today. Contact us to see how we can help you succeed.
