Streamlined Retirement Plan Model Under Review

For small employers, the costs of administering a retirement plan can be intimidating. Legislation in Washington could provide some relief — particularly for very small employers — by easing regulatory restrictions covering “multiple employer plans” (MEPs).

Regulating MEPs

A MEP is, in effect, a plan of plans. It’s a common administrative umbrella covering plans sponsored by a group of small employers. Current rules governing MEPs require, among other things, that the companies joining together to form a MEP have a “commonality of interest.” This is generally met when the companies are members of the same industry. For example, members of a national association would have the commonality of all being members in the same industry and members of such association. If the association sponsors a retirement plan, it would allow members to participate in such plan. These arrangements have typically been known as “closed” MEPs.

In addition, current IRS regulations appear to suggest that regulatory violations by a single employer in a MEP become the liability of all of the plans within the MEP. Naturally, employers are skittish about using a MEP under these circumstances.

Legislation and regulatory proposals to address those issues have been proposed by both Democrats and Republicans. Former President Obama’s administration encouraged the enactment of such a law in 2016, but it didn’t happen. Now, the Trump administration is proposing similar changes. In late August 2018, President Trump issued an executive order calling on the Department of Labor to, among other things, examine policies that would clarify and expand circumstances under which U.S. employers may sponsor or adopt a MEP. The “commonality of interest” requirement is one of several constraints targeted to be eliminated from the requirement. Another is the liability issue.

Congress’ failure to move forward on earlier proposals may have been more due to distraction than widespread opposition to the idea of expanding MEP eligibility. But now, a bundle of bills has been introduced, known as Tax Reform 2.0. The package includes the Family Savings Act of 2018, which would, among other things, expand MEP eligibility and thereby accomplish by statute what the Trump administration was seeking to address through regulation.

The primary aim of the MEP changes is to inspire small employers that currently don’t offer a retirement plan to do so. According to a study by the Government Accountability Office, only 14% of employers with 100 or fewer employees sponsor a retirement plan. (That includes many companies with 10 employees or fewer.)

Closing Retirement Coverage Gap

The Department of Labor (DOL) requested input on the issue and one of the commenters was Prudential Insurance Co. It stated that it has “long believed that multiple employer plans offer a potential solution to closing the retirement coverage gap.” But easing the MEP rules doesn’t exclude the possibility that some employers, which already have a plan in place, might find a MEP a more efficient alternative — and make the switch.

It’s noteworthy that the Trump administration has already been able, by regulation, to allow more employers later in 2019 to create MEP equivalents in the health arena, known as Association Health Plans (AHPs). Prudential, in its letter to the DOL, pointed out that the same potential benefits from AHPs could apply to MEPs, such as “increased bargaining power, economies of scale, administrative efficiencies, and transfer of plan maintenance responsibilities from participating employers.”

Looking Ahead

Until the liberalization of current legal constraints on MEPs actually occurs and service providers begin to introduce them to the retirement plan sponsor community, it won’t be clear how attractive they might be. If you’re a small employer, be sure to ask your benefits advisor about whether a MEP may be right for your company.