MEP, adopting employer and 408b2 requirement

[WCC]

An employer is considering becoming an adopting employer in a MEP. We advised this potential adopter to ask for a copy of the 408b2 notice. The sponsor of the MEP refuses and states they have no obligation to provide the 408b2 notice to adopting employers. Their reasoning is that the 408b2 regulations apply to the covered service providers and themselves as plan sponsor of the MEP (i.e the fiduciary referenced in 408b2). They state the adopting employer is not a plan fiduciary and therefore will not provide it. 

After reviewing 408b2 I think the MEP sponsor is right. However, how is an employer supposed to make a good decision for their employees if they don't know who is being paid what? All they have is the participant fee disclosure and cannot compare total cost between a MEP or sponsoring their own plan?

Curious of anyone's thoughts. Thank you

[K2retire]

They could explain to the MEP that as a fiduciary they are not willing to join the plan without that information. If they still won't provide it, they should look elsewhere.

[Bird]

Interesting.  I'll start the discussion.  (Oops, a minute or two late for that...)

In theory, and maybe in reality, as a customer, I shouldn't care or need to know who is making what on something I buy.  If I want to buy a gallon of milk as cheaply as possible, I shouldn't care how much different stores are paying their suppliers for the milk, or their overhead, or whatever.  I should just look at the price and buy the least expensive one.

Ignoring service differences, which of course is a big thing to ignore but just focusing on costs, I think you should have enough info to make a decision based on the participant fee disclosure and the quote for direct service fees.  Look at the share classes offered and expenses, and try to find identical funds so you can compare apples to apples.  Some platforms have asset charges added on , and some capture revenue from fees built into fund expenses.  One platform might use R-6 shares with 0 comp built in for the broker and recordkeeper, and charge 75 bps as a wrap fee, and another might use R-2 shares which have 75 bps built in for broker comp plus 15 for sub-TA fees.  That gives you a pretty good idea of who is getting what, but again, does it matter?  If the first scenario has fund fees of 50 bps and a wrap fee of 75, that's 125 bps total.  If the second one has fund fees of 145 bps, well...that's more.  Do you really need to know who is getting what?

[WCC]

Thanks. We have gone through the participant fee disclosure and there is definitely revenue sharing being paid from the funds. The frustrating part is the MEP provider is telling them the plan is "free" when it comes to admin fees. There is no asset charge and no direct billable, just revenue sharing. We have fund tickers so we can determine the 12b-1 and sub TA's being paid.

32 minutes ago, Bird said:

Do you really need to know who is getting what?

Not necessarily. But... we have been on this fee transparency wagon so long that it bothers me not knowing what the service provide is being paid by plan participants.

Thanks again.

 

[justanotheradmin]

I'm curious, maybe someone will indulge my side question -  

Wasn't there some prohibition on using plan assets to pay employees to do administration? For example, a company does all of their plan's admin in-house with a person in accounting/HR responsible for it (no outside TPA firm). The plan could not pay for the cost of the employee that runs the plan. Plan assets can't be used. The company pays for that employee. Am I remembering this correctly? But if an outside TPA firm was hired to do the same function, their fees could be paid from plan assets. 

If so, does the same rule apply to MEPs? Can the plan sponsor that is running the MEP pay for their employees that are administering the plan pay for those employees out of plan assets? Is that why in the example on this thread the MEP sponsor is only taking revenue sharing and no regular admin fees from plan assets?