Putting MEPs on the Map

As we all know, the Department of Labor recently unveiled a new final rule that will make it easier to form and manage Multiple Employer Plans (MEPs). So it’s no wonder that many advisors in the industry are thinking about the best ways to incorporate them into their business strategies.

For retirement plan advisors, in particular, new MEP rules are changing the game—especially in the small plan market. Thanks to recent regulations, employers that have little or no business-related connection to each other are now able to join a closed MEP, creating an opportunity for advisors to service smaller clients as a 3(38) fiduciary in a way that’s both scalable and cost-effective.

Where should an advisor start? Although advisors cannot sponsor closed MEPs, they can leverage relationships to put the right MEPs in place. Most advisors have spent their careers developing centers of influence. A MEP allows them to turn those relationships into partnerships by working together to create really efficient offerings.

While the MEP would be sponsored by a lead employer that takes on the bulk of the fiduciary responsibility and administrative oversight, advisors and partners can make it easier to craft and manage, while also delivering superior brand and value.

Two relationships, in particular, that bring significant opportunities are employer groups and associations, both of which can act as the “lead employer” of a closed MEP.

Since recent regulation now allows for unrelated employers with at least some commonality to create cost-effective group retirement plans, employer groups and associations are a perfect place to start. Both have access to a significant base of employers with common denominators such as a common geographic location, which the Department of Labor said is a sufficient nexus to join a closed MEP.

By sponsoring a MEP, association or employer groups can enhance their benefits, better support their members, increase engagement, and even boost membership.

The value in one payroll provider

Another relationship that’s highly relevant in the MEP universe is payroll providers. Having a number of disparate payroll providers in a MEP can be an administrative nightmare.

Since accurate payroll files are critical to administering the plan, some MEPs engage a separate data aggregator to process those files, which adds time and cost while making the plan more vulnerable to mistakes just by virtue of having another third-party provider involved in plan administration.

Therefore, having one central payroll system in a closed MEP is a huge value-add, and triangulating the payroll relationship with an employer group or association is an even stronger offering. Forward-thinking advisors will try to connect associations and payroll providers in a MEP structure for maximum efficiency with optimal cost designs.

Start the MEP discussion

Overall, advisors should be thinking about MEPs not just as they relate to their clients, but as they relate to their own business models as well. And while the future of MEPs may currently be in limbo, they are still a worthwhile discussion point for advisors in the small plan market.

If nothing else, conversations about MEPs give us all an opportunity to have transparent discussions around the future of retirement for companies of all sizes. And once the passage of open MEPs comes into play, advisors who take steps now to make changes to their business strategy will already be ahead of the game.

By: Benjamin Thomason, Vestwell

Ben Thomason is the Executive Vice President, Revenue at Vestwell, a digital platform that makes it easier to offer and administer retirement plans. Thompson leads the sales and service operations with a focus on expanding the firm’s current advisor relationships, building new strategic institutional partnerships, and overseeing plan sponsor support. 

How Small Businesses Benefit from the SECURE Act

 

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By Allison Brecher, General Counsel, Vestwell

Congress is close to passing legislation that will be a big win for small business owners thinking of offering retirement plans to their employees. The Setting Every Community Up for Retirement Enhancement (SECURE) Act has a number of provisions centered around improving the nation’s retirement system, but small businesses in particular stand to benefit in many ways. Most notably, the Act would:

  • Increase the business tax credit for plan startup costs to make setting up retirement plans more affordable for small businesses. The tax credit would increase from the current cap of $500 to up to $5,000 in certain circumstances.
  • Encourage small-business owners to adopt automatic enrollment by providing an additional $500 tax credit for three years for plans that add auto enrollment of new employees.
  • Simplify rules and notice requirements related to qualified nonelective contributions in safe harbor 401(k) plans, a particularly common plan design amongst small businesses because the plan automatically passes certain compliance tests.
  • Offer a consolidated Form 5500 for certain defined contribution plans to reduce costs.

Additionally, the SECURE Act allows unrelated small businesses to get together in an “open” 401(k) multiple employer plan (MEP), which could also reduce costs and administrative responsibilities. Currently, only so-called “closed” MEPs are permissible, which require employers participating in it to have some kind of connection between them, such as membership in the same industry or an established trade association, and each business bears liability in the event any employer in the plan fails to comply with legal or regulatory requirements.  “Open” MEPs eliminate those rules.

The SECURE Act would also increase plan flexibility, which is a big benefit for small plan sponsors. First off, it would permit employers to add a safe harbor feature to their existing 401(k) plans even after the plan year has started as long as they make at least a 4% of pay contribution to employees, instead of the regular 3%. Second, it would extend the period of time for companies to adopt new plans beyond the end of the year to the due date for filing the company tax return.

There are other benefits that focus on helping employees save more for retirement. For example, it’s been proven that automatic enrollment and automatic escalation features encourage long-term savings, and the SECURE Act permits safe harbor 401(k) plans to increase the auto enrollment cap from 10% to 15% of an employee’s paycheck.  And since employees are working and living longer, the bill also benefits older workers by letting them continue to contribute to their plan until age 72, up from the current age of 70 ½. Lastly, it would provide penalty-free withdrawals from retirement plans of up to $5,000 within a year of the birth or adoption of a child to cover associated expenses.

The SECURE Act’s companion bill, the Retirement Enhancement Savings Act (RESA), is now moving forward through the Senate. RESA includes many of these same beneficial provisions and also has bi-partisan support. Many industry experts expect a compromise version of the two bills to become law before the end of 2019, making it the perfect time for small businesses to take action. If an employer wants to offer a safe harbor plan, plan documents need to be signed by late summer. This way, they’ll meet the October deadline for distributing legally required notices, be able to go January, and take advantage of the full tax benefits for the year.

Newly Proposed Bills May Help Your Plan Sponsors

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Tax reform isn’t the only newsworthy event affecting the benefits industry–several bills were introduced in Congress at the end of 2017 that could dramatically impact certain kinds of retirement plans. While these new proposals have an uncertain future, they all signal Congressional interest in improving retirement security. Here are some common trends news that you may see affecting your retirement plans soon.

Increase access to multiple employer plans (MEPs)

The Small Businesses Add Value for Employees Act (SAVE Act, HR 4637) removes the “common bond” requirement, thereby making it easier for small businesses to pool together, regardless of industry, and offer retirement plans to their employees while alleviating some burdens of plan administration.

The Retirement Security Act of 2017 (SB 1383) offers employers a tax credit and protects employees from losing their tax benefiits if one employer in a MEP fails to meet the participation criteria. Similarly, the Auto401k Act (HR 4523) provides relief from the “one bad apple” rule of MEPs so that all participating employers are not penalized when one employer violates the qualification rules.

Incentivize small businesses to offer retirement benefits

Through tax credits and other incentives, Congress is attempting to make retirement plans more accessible and promoting lifetime income solutions.The Retirement Plan Simplification and Enhancement Act (RPSEA; HR 4524) would increase the current automatic enrollment safe harbor cap and encourage employers to defer more than the automatic deferral floor of 3% of salary in the first year. It would also exempt retirement savings below $250,000 from complicated required minimum distribution rules and make it easier to take advantage of the saver’s credit. The SAVE Act increases the limit on elective deferrals under a simple IRA and permitting employers to make non-elective contributions for their employees of up to 10% of pay.

Reduce administrative burdens for plan sponsors

Congress is also addressing some of the lesser-known, but equally painful administrative burdens of sponsoring retirement plans. Access to a Secure Retirement Act (HR 4604) corrects some of the confusing regulations that often stop employers from including a guaranteed lifetime income product in their benefits package.

The Receiving Electronic Statements to Improve Retiree Earnings Act (RETIRE Act HR 4610) allows plan sponsors to use electronic delivery as the default distribution method for retirement plan notices and documents. A companion Senate bill is expected soon and the timing coincides with an effort by the Employee Benefits Security Administration’s project to address electronic delivery.

Staying on top of these bills can help eliminate the often confusing world of government. As Congress continues to takes steps to help plan sponsors, we will keep you updated on the way new legislation is affecting your clients. That way, as client questions come about surrounding what they hear in the news – their trusted advisor has the answers.