Question 327: After the recent Advisory Opinion, what are the advantages in being part of an open MEP?
Answer: DOL Advisory Opinion 2012-04A (herein referred to as the "Opinion") which determined that the underlying employers of an open MEPs have each established separate ERISA plans, took away some of the benefits of an open MEP, such as filing a single 5500, but did not remove all of them.
When I've taught this issue, I've begun by asking "Do you know any employer that has no business administering their own retirement plan; for whom the world would be a better place if someone else, preferably someone who knew what their were doing, were making the key decisions about investment offerings, service providers, and plan administrative issues?" Everyone smiles. Yes, they know employers who are awful plan administrators. They know employers who don't pay attention, who don't listen, and who don't care. And if we can let these people do what they want to do (run their companies and show a profit), and let others do what they do well (run retirement plans), that seems ideal.
The open MEP provides a vehicle to do that. If the people administering the plan and dealing with the MEP's investment menu are competent, they can provide a valuable service to both the employer and the plan participants.
However, that less-than-fully-capable employer still has an important role to play. The Opinion makes clear that the employer cannot simply say "I abdicate! Let's join a MEP. Any MEP will do." The Opinion reminds us that the decision to entrust plan funds with a given set of service providers is a fiduciary decision. That means the employer needs a prudent process to decide (1) that a MEP is a good approach to provide plan services and (2) that the MEP providers selected are appropriately providing necessary services at a reasonable price. The employer also retains the duty to monitor those decisions on an ongoing basis. "Set it and forget it" does not apply to fiduciary decisions.
But even with these fiduciary functions, the employer is doing far less than it would if the employer were the plan administrator. The plan administrator named in the document or another plan fiduciary will receive the new disclosures from plan service providers, and will have the responsibility for determining their adequacy and the appropriateness of selecting or retaining the provider. The plan administrator, not the employer, has the responsibility of complying with the participant fee disclosures. The administrator has the ultimate responsibility for preparing the ERISA plan's annual Form 5500. The employer has no power over selection of the plan's investment menu, beyond the choice of the MEP itself.
Speaking of investments, that brings us to another potential advantage to the open MEP. The MEP has more assets than the plan of any single participating employer, and presumably has a greater ability to assemble a strong menu of investment options and to negotiate for favorable pricing for the participants.
Are there other mechanisms to realize these benefits? Yes. And, of course, the MEP design has disadvantages as well. That is why it is important for the employer to determine whether a MEP is appropriate and to compare MEP providers.
As a practical matter, if an employer is not currently committed to a MEP approach, now is probably not the time to move to a MEP. After the Opinion, there is some shake-up within the industry. Providers are adjusting their marketing materials, and, in some cases, their pricing. It is possible that we will see consolidation in the MEP marketplace, as some providers decide that they prefer not to operate under the new rules. Providers and their advisors are still trying to determine the full effect of the Opinion and how their plans must adjust. It makes sense to give some breathing room to let this happen, so that any decisions can be made in light of the new realities.
For further discussion of the qualification issues related to MEPs in general, see Chapter 18 of the new 6th Edition of my book, Who's the Employer. For a comparison of the Code and ERISA issues relating to open MEPs, see my article, Multiple Employer Plans: An ERISA Enigma, appearing in the Winter 2012 issue of the Journal of Pension Benefits (Vol. 19, No. 2, p. 6).