Pity the poor plan sponsor.

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Unless and until Congress gets its act together and passeslegislation enabling some form of universal open 401(k) MEP plans, plan sponsors will continueto suffer from the burden of hiring, monitoring, and managingthird-party service providers for a business they, by the grace ofERISA, have become only accidentally acquainted with.

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When your primary duty is to make widgets, it’s totallyunderstandable that plan sponsors are less proficient at overseeingtheir employees’ retirement plan, (see “The 3 Biggest Service Provider Mistakes 401k PlanSponsors Make,” FiduciaryNews.com, June 27, 2017).

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More to the point, do corporate executives serve the employeesbetter by focusing on growing the business or by focusing on makingthe 401(k) plan most efficient?

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Certainly, both efforts help employees, but in which one doesthe plan sponsor have the comparative advantage?

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You remember the term “comparative advantage” from Econ 101? Itusually applies to global economics.

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For example, both China and the United States can producelabor-intensive products and invent products that requiretechnological advances. China, however, has a comparative advantagewhen it comes to producing labor-intensive products because, giventhe very large supply of human capital in China, the cost of laboris much less in China than in the United States.

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Likewise, the United States has the comparative advantage whenit comes to inventing products that require technological advancesbecause the America economic system both permits greater freedom toexplore and greater incentives for invention.

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In the world of retirement plans, it’s probably a good guess tosay plan sponsors have the brainpower to both run their businessand run their employees’ retirement plan.

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The question, though, is “What activity represents a better useof their time?” That’s where comparative advantage comes in.

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To discover where one’s comparative advantage lies among anarray of potential tasks, determine how hard it is to secure anadequate replacement for each of those tasks. One’s comparativeadvantage exists in the tasks where it’s most difficult to find areplacement.

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In the case of those managers assigned to administer theircompany’s retirement plan, unless they are dedicated employees,their comparative advantage remains with their primary duty. Theycan always hire a replacement to manage the retirement plan. It’smore difficult to hire a replacement for their specific role inwidget making (and, if it were easy, their boss would hire thatperson and fire our unlucky manager).

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Delegating retirement plan responsibilities by hiringprofessionals doesn’t fully incorporate the comparative advantagestrategy. Plan sponsors still have to manage those serviceproviders. That takes time. Time better spent on making thoseproverbial widgets.

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But there’s a better way. Many companies fortunate enough tobelong to a business association already experience this. Suchaffiliated groups can offer 401(k) MEPs to their members.

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These so-called “closed” 401(k) MEPs pool the members'employees into one collective 401(k) plan with the associationacting as plan sponsor. This takes the burden of vetting,supervising, and benchmarking plan service providers from thepart-timers in the company to the full-timers in theassociation.

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Those plan sponsors not in business associations don’t haveaccess to closed 401(k) MEPs – the only form of MEPs currentlypermitted by the DOL. These companies must use “open” 401(k)MEPs. Such animals exist but, because they don’t have the approvalof the DOL, open MEPs lack many of the “comparative advantage”benefits of closed MEPs. To borrow a currently favorite phrase,open MEPs are in the “best interest” of nearly every plansponsor.

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Moreover, Congress, in a rare display of bipartisan agreement,appears to agree open 401(k) MEPs will help encourageretirement saving by getting more companies to participate inretirement plans.

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Now, there are some aspects of MEPs that still need to be ironedout, but the fastest way to smooth out these issues might be toenact legislation to create open MEPs and let the competitivemarkets determine who can come up with the most effectivesolution.

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There’s one thing we know for sure. At the very least, open MEPswill solve the biggest challenge all current plan sponsors face:how to best exploit their comparative advantage.

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Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).