MULTIPLE EMPLOYER PLANS (MEP) – One plan that is adopted by several different companies is called a MEP. The President’s proposal would allow Open MEPs meaning that the companies adopting the plan don’t need to have anything in common except the desire to offer retirement for their workers.

Discussion:

• This is not new – MEPs are traditionally offered through associations of related employers. The IRS and the DOL currently have different opinions about Open MEPs so most of the industry has steered clear of them. The President’s proposal would smooth over those differences to make Open MEPs more available.
• Cost sharing – it may be less expensive for several small employers to adopt and administer one plan than each having its own plan. Administrative fees would be shared. Investment expenses tend to go down as assets grow.
• Investment expenses – most Open MEPs have fees paid from plan assets, so until the asset base grows to a large enough number, the fees charged to the participant accounts may be significant.
• Required filings – The MEP would file a Form 5500 each year. In addition, each employer adopting the MEP would still have to file a Form 5500 reporting activity for its employees.
• Audit requirement – once more than 100 employees are eligible for the MEP, a CPA audit must be attached to the MEP filing. This could add about $10,000 per year to the total administrative costs.
• Fiduciary liability – adopting a MEP might help alleviate the employer from some of the fiduciary liability that they might face sponsoring their own plan. The MEP expenses may include outsourcing fiduciary roles to third parties.
• Portability – An employee who moves from one company in the MEP to another company within the same MEP would not have to withdraw or transfer funds.
• Choices – Employers who adopt a MEP are subject to the rules and restrictions and investment choices of that plan.
• Bad apples – If one of the adopting employers does not follow the rules of the MEP they can be kicked out of the MEP without jeopardizing the plan.

STATE-RUN MEPs

Fourteen states have considered legislation that would establish a state-run retirement plan. Illinois implemented its plan in 2015. Massachusetts is close to implementing its plan, but it is limited to non-profit organizations with fewer than 20 employees. California’s Secure Choice plan is still in the planning stages. Are they a boon or a boondoggle?

Discussion:

• Mandates for participating in a state-run plan are only for employers who do not sponsor their own plan. So to avoid the mandate, employers may look to set up a retirement plan that they can control.
• State-run MEPs are typically a salary-reduction IRA plan.
• Unlike a 401(k) or other qualified plan, the state-run plan would likely not be covered by the Federal ERISA laws that provide crucial protections for participants.
• They may be mandated for employers of a certain size (like those with 10 or more employees).
• Management of the contributions to the plan is unclear. Will CalPERS manage the accounts for California workers, or will the accounts be set up at a mutual fund company or bank? Questions still linger.

TAX INCENTIVES!

The President’s proposal would increase the current tax incentives for employers to set up retirement plans.

Discussion:

• Current tax incentives include $500 per year for three years to establish a new plan that covers at least one employee (in addition to the business owner).
• Proposed incentive includes an increase to $1,500 per year for three years.
• Automatic Enrollment incentive – An additional $500 per year for up to three years is proposed for plans that implement automatic enrollment provisions.

WHY NOW?

Employees need to save more for their retirement to avoid a cataclysmic future social disaster. Acting now may prevent a desperate run on government benefits as employees reach retirement age. If private industry does not step up to the plate to provide these benefits, the state and/or Federal governments may very well legislate their way to a solution.

Discussion:

• About 64% of full time workers participate in a retirement plan
• Only 20% of part-time workers participate in a retirement plan
• Over 60 million American workers are covered by a 401(k) plan or similar plan.
• Eighty percent of 401(k) participants come from households making less than $100,000 per year in income.
• Employees earning moderate wages ($30,000-$50,000) are 15 times more likely to participate in a 401(k) plan offered at work as opposed to funding an IRA for themselves

SUMMARY

• Retirement plans are important.
• The current system can work if private employers offer a plan to their employees.
• Tax incentives offered to help offset costs are welcomed
• Open MEPs may provide a reasonable solution for employers who are looking to outsource the responsibility of maintaining a plan, but watch out for costs
• State-run MEPs are likely a very inefficient way to fix a growing problem. They may also turn out to be a boondoggle for big investment banks

Get ahead of the curve, and set up a retirement plan for your company today! Click here to coordinate a call with one of our pension consultants to see how Benefit Resources can get you on the path to a successful retirement outcome.

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California Secure Choice Retirement Savings Trust Act

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