Rich and Co.

Open Architecture, Multiple Employer 401k Plan Opportunities for Advisors and Plan Sponsors

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Here is a good “brief” on Open Architecture MEPs.  There seem to be significant advantages for both advisors and companies.

Take Away —

“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, an MEP plan might be the perfect fit.”

Riding the MEP Cloud: The Open Architecture Multiple-Employer 401(k) MEP

by Tony Michael of FutureBenefits of America LLC.

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 (a “cloud”) if you will, 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 ever changing technology they have in their offices.

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 and new benefits added on.

The New Open Architecture MEP
The MEP derives its structure from section 413(c) of the internal revenue code.  It allows unaffiliated companies to be part of a single, consortium 401(k) plan.  This new kind of plan that has come out of this evolution is called by many names, but we will call it the “Open Architecture MEP”.  This is a great opportunity for advisors of all levels of experience to be involved and add significant value.

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 a MEP for the advisor and the adopting employer.

The advantages of 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.

The Advisor Advantage
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.  Having to also prospect for business added to that can overwhelm even one of the most organized advisors.  By placing employers in an open architect MEP, the burden of investment analysis and fiduciary liability of those investments is placed on the professional money manager hired as a 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 and eliminate the low-value and complicated and 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 a retirement advisors to stand-out from your competitors and differentiate yourself by solving plan sponsors problems better than other advisors.  This solution, as you configure it, can also become proprietary to you.

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
  • The 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 offered to the smaller plan inside the MEP now.

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.  An MEP plan 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, an 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.

Here is a link to download the full article.


Written by Rich and Co.

June 13, 2011 at 7:43 pm

Posted in Retirement Plans

2 Responses

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