Multiple employer plans: What’s in it for participants? (Quite a lot.)

The President’s 2017 Budget proposal, published today, includes support for the idea of open multiple employer plans (MEPs). The MEP concept has received a lot of attention in recent months: for small employers looking for an easy and effective vehicle to offer workplace-based retirement saving, MEPs may well be a good fit. They could prove to be a good structure for participants, too.

Growing momentum behind the MEP concept

Six months ago, I observed that MEPs were moving out of the shadows and into the spotlight. That movement has continued. At present, MEPs are a pretty small part of the retirement savings landscape, and there are a couple of regulatory barriers to their wider adoption that would require some sort of DOL/legislative action to remove. President Obama’s 2017 Budget, published today, is the latest proposal to call for such action.

Support for MEPs has been growing and that support seems to be bipartisan. The idea of state-run MEPs was put forward by the Department of Labor in November, and that has led to widespread calls in favor of supporting private sector-run MEPs, too.

MEPs offer obvious benefits for employers, especially small firms. It allows them to offer a 401(k) plan without having to sponsor it themselves. And it should be possible to structure the MEP legislative framework to clearly define (and limit) the extent to which the employer bears fiduciary responsibility for the plan; this is a major area of concern for many, and a big reason that employers are wary of improving their retirement benefits. The financial industry, on the whole, has been increasingly supportive of open multiple employer plans  as a means of extending the coverage of workplace-based retirement saving among smaller employers.

But what about participants? What’s in it for them?

Some retirement savings structures are more efficient than others

Relatively few workers choose to save for retirement outside of the workplace. Although those without access to workplace-based plans can save through an IRA, not many do (most IRA assets have been rolled over from 401(k)s or other workplace-based vehicles.) As well as offering the convenience of payroll-deduction, an open MEP that operates within the 401(k) system offers a number of other advantages for workers, including the scope for employer contributions and higher contribution limits. What’s more, fees may well be lower than is possible within the retail IRA market. And it would offer the protection of ERISA, which gives (in the words of the DOL) “a well-established uniform regulatory structure with important consumer protections, including fiduciary obligations.”¹

All of this requires appropriate regulation and oversight, so there’s work to be done on getting the details right. By building on the existing regulatory framework for 401(k)s, a well-regulated open MEP system may well offer real potential to efficiently expand retirement saving.