Is the Time at Hand for 'Open Meps' - repost from Unified Trust Blog

Time and timing are funny things.  A good idea may be a good idea, but the timing of that idea can be everything.  Back in 2010 and 2011, it seemed like I couldn’t have a conversation with an advisor or go to an industry conference without hearing about so-called ‘Open Multiple Employer Plans’ or ‘Open MEPs’.  At first, they almost sounded fake to me, as we in the industry have a tendency to create marketing or sales terms.  Of course, I was aware of MEPs, but only in the context of what we’re now calling ‘closed’ or ‘traditional’ MEPs.  The concept behind a MEP was always that the related business’ sharing some kind of a nexus or commonality could essentially join into the same retirement plan.  By banding together, economies of scale had the potential to provide better investments, lower fees and less fiduciary risk-all good benefits.  The nexus was important as it kept this exclusive to related or very similar entities.

There had been  a lot of noise in the market that Open MEPs, where this commonality didn’t exist, were also okay.  This struck me as odd.  Did the rules change when I wasn’t paying attention? I don’t think so.  I’ve come to the conclusion that what did change was that the market decided that the existing rules weren’t clear enough. There was a disconnect between what was written into ERISA on MEPs and what was absent in the Internal Revenue Code about MEPs.  Because of this lack of continuity, some aggressive players in the market went ahead with the Open MEP idea, taking the position that if it isn’t explicitly prohibited, it was therefore permitted.  I remained skeptical and even wrote about it on my personal blog (MEP’s EBSA Speaks and More Opinions).  Then in May of 2012, the Department of Labor issued the TOTH Letter, DOL Advisory Opinion 2012-04A.  With this stroke of the pen (or keyboard), all of the noise in the market quieted down.

Flash forward four years and this concept is again at the forefront of the conversation.  In fact, a version of Open MEPs, now being called Pooled Employer Plans (PEPs) is close to becoming a legal structure.  Prior to the election, I was interviewed on this subject (Multiple Employer Plans Have a Bright Future) and discussed whether or not this idea would have its day.  The creation of these new PEP plans is part of a bill that was marked up by the Senate Finance Committee in September called The Retirement Enhancement Savings Act of 2016.  This bill supports the notion of an Open MEP, now being called a PEP, effectively removing the nexus requirement if certain conditions are met.  Timing is everything and now the question really is, when will this bill get passed?  It has made it through Senate Finance unanimously (a very rare occurrence) and has bipartisan support.  At this point, it seems that the only decisions left to be made are regarding  what broader piece of legislation will this Act be attached to and which president will get the credit for it, Obama or Trump.

Professionally, I find this exciting.  As readers know, Unified Trust Company is a professional ‘named fiduciary’ in our role as Discretionary Corporate Trustee over retirement plans.  Within these new PEP requirements are the appointments of a “pooled plan provider”, a ‘named fiduciary’ to act as the plan administrator and one or more named trustees who “must be  a bank or other financial institution” that would be responsible for contributions and assets.  Unified Trust would be a great fit potentially for some of these roles.  Whether these come to fruition sometime soon or not, the future is looking very bright.

- Jason Grantz

Scary Times (not an October pun)

First, I'd like to apologize to those who regularly read this blog for delays between my last and this blog post.  It's been an extremely busy summer and often the first thing that gets pushed to the side when time is short are passion projects.  That said, while this is not a political blog and I'm not a political person, no post in mid-October of this particular election year couldn't ignore the scariness of our current presidential race and the potential ramifications.  

Earlier today, I read a blog post from 401(k)specialist.com, linked here called How a Hillary Win Means Government Run 401ks.  That's a pretty scary title!!  I'm not giving a presidential opinion, but rather opining on the....aghast.....thought of the government taking over and running (er...eliminating) the 401(k).  The ramifications of this are scary as well, complete elimination of an entire industry that's been helping people for over 30 years and despite what they tell you, an even WORSE result.  Despite the negative noise around the private sector system, the 401(k) helps more people financially then ANY other program out there with the exception of Social Security, and everyone acknowledges that Social Security falls far short for most and when supplemented with 401(k) can give people a financial chance.

In the article, it describes how Hillary Clinton is considering Tony James for Secretary of the Treasury.  Tony James is a co-promoter of Guaranteed Retirement Accounts, an idea that's been put forth by Teresa Ghilarducci, the professor of economic policy analysis at the New School for Social Research and a well known enemy of the 401(k) and the 401(k) industry.  She often makes glib disparaging commentary about the 401(k) referring to it as an 'immature child' and the like. 

Her  idea is to mandate a 3% of compensation contribution into a new retirement system run by the government.  This would be in addition to what folks already put into Social Security.  This "new" idea has been around since Carter was president!!!!  If anyone thought that 3% was enough to make retirement inadequacy a thing of the past, they would have passed it through already!!!  We're talking almost 40 years and 6 Presidents!  Don't get me wrong, I think we can all acknowledge that their are problems, coverage is certainly an issue and costs, while already compressing, still have room to go down.  But, most professionals in this space will tell you that a minimum of 10% of compensation is what people need to be saving to ensure financial security in retirement.  That's the FLOOR, so 3%.....REALLY???!!! 

It is alarming that this type of socialist reform is the main idea of the folks advising this future potential president.  However, if Hillary wins the presidency, there's no guarantee that she'll be re-elected and scrapping an entire retirement system in favor of this sort of reform is going to be highly resisted, four years won't be enough time, not to mention, Secretary's of Treasury don't make laws.  So, in my opinion, this won't be what actually occurs, but it is something that we should all be keeping an eye on as these types of ideas from powerful and influential people have a way of sticking around. 

- Jason Grantz