What, then, will be the key components of the 401(k) MEP model?Which players will dominate? Which service providers will multiply?Which may find less interest in their services? (Photo:Shutterstock)

Here's the way I see it: In 10 years, private-sector open401(k) multiple employer plans (MEPs) will be the norm. Stand-alone 401(k)plans will be few and far between. Like pension plans today, onlythe oldest and largest companies with have them. And they'll betrying to figure how to get rid of all the bells and whistles theyadded to them.

State-run retirement plans? By 2030, after a series of statebankruptcies and scandal, the few that remain will have all thecredibility of a MyRA. The good news, though, is that the (blue)states that still have them will have begun to use them to replacetheir public employee pensions. (They'll rationalize this shift asa way to make state-run retirement plans "sustainable.")

Where does that leave you? Well, you'll need to figure out yourlittle island in this new world.

The first step, of course, is to consider all the differentpieces that will make the future (you can get a glimpse of them in"Exclusive Interview: Terrance Power Tells All AboutWhat's Changed (and More!) With 401k MEPs," FiduciaryNews.com,October 15, 2019).

What, then, will be the key components of the 401(k) MEP model?Which players will dominate? Which service providers will multiply?Which may find less interest in their services?

It's clear the gatekeeper to this new business will be the samegatekeeper of the current 401(k) industry: the recordkeeper. Soundslike a good thing for recordkeepers, keeping the status quo.

But that's a little too optimistic. Here's the problem forrecordkeepers: as stand-alone 401(k) plans begin to consolidateinto fewer and fewer MEPs, there will obviously be a lot fewerstand-alone 401(k) plans. And that means a lot fewer opportunitiesfor recordkeepers.

If you think the recordkeeping industry is consolidating now,wait a few more years.

So, which recordkeepers will survive and thrive? Not necessarilytoday's major players. MEPs will require much more flexiblerecordkeeping systems. Today, recordkeepers can isolate systemswith individual stand-alone plans. Under the MEP model, thoseisolated systems will need to merge to accommodate many moreplayers acting in concert with one another.

Recordkeepers that try to proceed with a hodge-podge system willquickly discover breakdowns in their ability to handle MEPs. Or,rather, the member companies will experience these breakdowns. Andas those companies will be more sensitive to breakdowns during theearly transition period from stand-alone 401(k)s to 401(k) MEPs,early recordkeeping errors may not be forgivable.

Part of the challenge for recordkeepers will be the need tointegrate another component of the 401(k) MEP: the payrollprocessor. You might think, as the payroll processor, they wouldhold the keys here. Well, some already offer 401(k) administration,so there's a chance they'll want to sponsor 401(k) MEPs, but thatwill have to wait for Phase II, when open MEPs are officially athing.

Right now, they're not. We're in the preliminary round. That'sthe domain of the closed MEP, which leaves payroll processors onthe outside looking in. That's what gives the edge to today'srecordkeepers.

But it doesn't diminish the historic role of payroll processors.Chances are, member companies will only join MEPs that permit themto keep their current payroll processors. This is where the primarypressure for integrating systems comes from, as MEP recordkeepingsystems must account for many payroll processors participating in asingle MEP.

Expect a lot of finger pointing as a result. At least initially.That's what we saw in the early days of the 401(k). So don't besurprised to see it again in the early days of the MEP.

Finally, we have the investment adviser. You might think theirrole will also be consolidated as there will be fewer stand-alone401(k) plans with the rise of MEPs.

Not necessarily. In fact, MEPs may create a need for more RIAinvolvement, not less.

Sure, there will be fewer opportunities as there will be fewerMEP plan sponsors to work with. On the other hand – and we're onlybeginning to see this, albeit rarely, in stand-alone 401(k) plans –MEPs may finally usher in the reality of multiple RIAs workingwithin the umbrella of a single (MEP) plan.

Here's how this would work.

You'd still have the primary fiduciary. This is the RIA thatworks directly with the plan sponsor, designing the plan optionmenu, selecting and monitoring the underlying investment options,and otherwise performing the same services provided to plansponsors today.

But there will develop a need for a secondary investmentadviser. In fact, many of them. While there may be only one primaryRIA, there will potentially be one secondary RIA for every membercompany.

Just as a member company may want to keep its payroll processor,so too may it desire to retain a "favorite son/daughter" RIA towork with its employees. MEPs will be able to meet this need, aslong as the secondary RIA works within the investment frameworkdesigned by the primary RIA.

There you have it. The component of the 401(k) future. Keep inmind that extrapolating today rarely gives you a clear indicationof what tomorrow will look like.

The question remains, however, "Where do you see yourselffitting in this future?"

READ MORE:

• Commonality for MEPs proposed for businesses insame state, municipality
• The DOL's MEP proposal: Is Labor pickingwinners?
• Would open MEPs disrupt the 401(k)market?