If you don't know what a 401(k) MEP is, you need to find out. If you’re running a business, you really need to find out.
Remember when you were a kid and you wanted that piece of candy that cost 45 cents, but you only had 40 cents? Then you discovered if you bought a package of five, the cost per piece was only 35 cents. All you needed was to find four other friends with 40 cents. You could then pool your money and buy the package, enabling each of you to enjoy that candy for a “reduced” cost.
Ah, the classic advantage of economies of scale. On the most superficial level, pooling together the 401(k) plans of different firms presents this same benefit. The larger the plan, the better able it will be to negotiate more favorable terms with the various third party service providers. But 401(k) MEPs offer much more than lower expenses — to both plan sponsors and plan participants.
Most immediately, 401(k) MEPs permit corporate executives currently exposed to fiduciary liability to mitigate a significant portion of that liability. Under the traditional setup, company officers with little to no experience in operating retirement plans must nonetheless oversee them. With this responsibility comes grave consequences. What business leader wouldn't jump at the opportunity to remove this career downside?
Look at this from the perspective of a plan participant. Is it in their best interests to have this oversight duty conducted by full-time experienced professionals or their own company's executives (who stand as amateurs in comparison)? Would you not have more confidence that such a specialist would have better aptitude when it comes to negotiating with plan providers? This will result both in reduced plan costs (thus letting employees enjoy a greater portion of their investment return) as well as greater value through higher quality service providers (thus nudging those investment returns a bit higher).
Returning to company leadership, in completely outsourcing retirement plan operations to a 401(k) MEP, the internal costs of administering such a plan are virtually eliminated. How much are these costs? In terms of HR staffing alone, companies pay anywhere from $131,617 to $221,117 for every 100 people employed. With staff of the 401(k) MEP taking on these duties, that money falls directly to the bottom line. At the very least, increasing corporate margins makes the 401(k) MEP option something to look at.
That's not all. Plan sponsor duties compete for a share of the mind of C-suite staff, too. It's unlikely a firm will cut these folks since their retirement plan duties only make up a small part of their overall obligations. It is likely, however, that without the burden of monitoring the company's retirement plan, those folks in the corner offices will have more time to focus on top-line matters. So, not only does a 401(k) MEP improve the bottom-line, but it also enhances the top-line.
Better results for employees. Better results for employers. What's not to love about 401(k) MEPs?