Wednesday, July 6, 2011

MEP's - Mediocre Employer Protection.....Just Kidding

Actually, the purpose of this post is in response to those seeking some "opinions" on whether MEP's, Multiple Employer Plans, are a good idea or not. The pros/cons are out there, on the pro's side is potential economies of scale and, theoretically, increased fiduciary protection. It has been this author's contention that the MEP is not a silver bullet (as has been sold by various MEP sales people), but isn't a bad idea necessarily. There is a place for all creative designs in the marketplace.

We believe that with a contained, related group of employers and the proper service providers in place, that a MEP structure can work quite well. Think about that small group of franchise owners who are related, but don't have a good employee benefit while the main franchise has a very strong one. Assuming the vendors can work with the group to allow it to be feasible from a cost perspective, this group could benefit quite well from a MEP structure.

That said, although an Employer who adopts a MEP plan for their employees is giving up 'Named Fiduciary' status, meaning they will no longer be the named Plan Sponsor or the Named Administrator or Named Trustee, we believe they will still be a fiduciary under ERISA and will have some remaining obligations. Specificully, under the definition of a fiduciary, ERISA §3(21) has 3 parts. Two of those parts deal with the ability to or the actual excercising of discretion over plan assets. It is under this formal definition that an employer who adopts a MEP is still a fiduciary. Ultimately, at their discretion they are opting into and may opt out of the MEP and this is an excercise of control over plan assets. Therefore, they are still a fiduciary and still have quite a bit of residual responsibilities and risk.

Recently, a series of opinions and subsequent postings have appeared that provide the user with some cautionary advice on MEP programs. See these two links, one from ASPPA and one from The Law Offices of Ilene H. Ferenczy, LLC.

Interestingly, these are more from the administrative point of view, but also site DOL opinions and a recent discussion held between members of the DOL and IRS with members of the Govt. Action Committee (GAC) of ASPPA. The result is a stated opinion that many of the so-called MEP programs out there wouldn't qualify as MEPs at all because many of the employers are unrelated and therefore fail to meet the qualification. Under those scenarios, if discovered, those plans would be required to file their own 5500's, test separately, have their own fiduciaries, etc. This is VERY different than the way that these increasingly popular "open-end" MEPs are being sold in the marketplace. I think this is a good case of 'Buyer Beware'. The employers are buying a Panacea or Cure-All for their responsibilities, but in reality they aren't gaining much, if anything.

As always, we welcome any differing view points or clarifications. Please, nothing commercial or it will not be posted.


  1. My company is in the process of sending our 401(k) plan out to bid. We hired an outside consultant to help us with this process. A company is offering a MEP but refuses to work with the consultant. Please read below and provide your feedback.

    "Because of the uniqueness of ____________ value proposition to the ________ industry-it is virtually impossible to spreadsheet __________ alongside other insurance companies, mutual fund families and national banks using the traditional spread sheeting methods."

  2. Dear Anonymous,

    It is an interesting position to take and one that I've seen before. Some of the more common MEP program's out there are industry specific. For example the Automobile industry via NADA or the legal industry via the BAR Association. They believe that the value proposition they bring will get lost in a spreadsheet. Most spreadsheets I've seen tend to drive the Plan Sponsor to select the cheapest or second cheapest vendor.

    I understand the hesitancy to participate in the standard consultant driven spreadsheeting process. In my opinion/experience, the reason why a vendor wouldn't participate is because the typical spreadsheet will flatten out the value proposition of all of the vendors. A good analogy is that the spreadsheet would be like faxing a copy of a priceless piece of art. The picture is still the same, but the experience of the person looking at it is very different. My firm, often not the cheapest, goes through the same process and often doesn't make it through this first step for that same reason, that our value proposition gets lost in the spreadsheet.

    Spreadsheets are also a time consuming excercise for the vendor to go through and depending on how many vendors are involved could be perceived by that provider as a waste of time. They may have stats that show that they only win 1 out of "insert number here" times when working through a "spread sheeter" and therefore they'll simply refuse to participate and try to work directly with the Plan Sponsor or simply move on to another opportunity.

    Thanks very much for the question. If you'd like we can continue this conversation privately. I can be reached at