Under MEPs,employers are still fiduciaries, but most of the burdens ofadministering plans can be offloaded to third-party providers.(Photo: Shutterstock)

Last week, President Trump signed an executive orderestablishing the expansion of access to workplace retirement plans as a formal policyof the federal government.

The order, which gives the Labor and Treasury Departments sixmonths to propose new rules or guidance that would clarify whichemployers could join Multiple Employer Plans, was lauded by employeradvocates and retirement plan providers across industry.

But support for so-called Open MEPs, which is shared across the aisle onCapitol Hill, has not always been universal, thanks to oneprominent case of fraud by a MEP plan fiduciary and other cases ofmismanaged Multiple Employer Welfare Arrangements, says Troy Tisue,president of TAG Resources, a Knoxville, Tennessee provider ofMEPs

In 2012, Tisue went to the Labor Department seeking an opinionletter on whether he could pool non-related employers into a MEPand have the plan still qualify as a single employer plan under theEmployee Retirement Income Security Act.

Not only did Tisue not get his opinion letter, in fact, what TAGResources and industry got was a clear declaration from Labor thatemployers required a nexus, or commonality relationship, for theMEP to be regarded as a single plan underERISA.

In effect, the advisory opinion issued under the leadership ofthen Assistant Secretary of Labor Philys Borzi established aprohibition period for Open MEPs by creating the “nexus”requirement.

“She was exercising caution in the face of several cases of puretheft,” Tisue explained to BenefitsPRO.

Borzi, whose career in the private sector and government wasguided by a dogged advocacy for ERISA's participant protections,was being asked by Tisue and others in industry for guidancebroadening access to MEPs just as the FBI was investigating MatthewHutcheson, an Idaho-based fiduciary to several MEPs, for stealingmillions from the plans.

“The timing could not have been worse,” said Tisue. Hutchesonwas arrested a month before Labor issued its advisory letter. Hewas ultimately sentenced to 17 ½ years in prison.

“We were trying to establish what a good player looked like,”added Tisue. “But the good players were thrown out with the bathwater.”

Other fraud by trustees of MEWAs, which are arranged like MEPsbut are not regulated by ERISA, had cropped up in prior years. Inthe aggregate, the crimes were enough to make Borzi, the ERISApurist, closed to the idea of opening MEPs, thinks Tisue.

Potential for sponsors to save thousands a year in auditcosts

President Trump's executive order does not specifically addressthe nexus requirement, but industry insiders widely expect Laborwill explore removing it, allowing small and midsized employers tojoin a MEP even if they don't share a commonality, such asmembership in a trade organization.

Under MEPs, employers are still fiduciaries, but most of theburdens of administering plans can be offloaded to third-partyproviders. A MEP files one annual Form 5500, removing thatreporting requirement for employers.

But the real topline value comes in savings from annual auditsrequired of sponsors of single-employer 401(k) plans, says TerryPower, president and CEO of The Platinum 401(k), a Clearwater,Florida-based MEP provider.

“If it goes through as expected, the real impact will be onemployers' audit expenses and requirements,” said Power. “I wouldexpect we will go to one 5500 filing, one audit and a separatereporting schedule for Open MEPs.”

Annual plan audits are huge costs borne by employers andparticipants in 401(k) plans. The bill can run as high as $30,000for a midsized plan. Under a MEP, that cost is spread amongparticipating employers and participants.

“An existing audit bill could be chopped down by as much as 95percent for an individual sponsor,” said Power. “If you are acompany that sells plan documents, or a CPA, you probably don'tlike MEPs, because there is one audit instead of 1,000. The onlyCPA that likes this is the one that will audit the MEP.”

Plans with fewer than 100 participants are not required to beaudited annually. A 50-participant plan with $20 million in assetswould be subject to an audit if it joined a MEP. Power sees that asa positive development for participants in existing small plans.“That's a great thing. It brings in third-party oversight and aseparate set of outside eyes on the plan.”

Tisue said a $20 million 401(k) plan can expect to pay between$10,000 and $12,000 annually for audits. In the closed MEPs run byTAG Resources, individual employers pay around $4,000 for annualaudits. “It's reasonable to expect that sponsors could save atleast half on audit costs, and maybe considerably more than that,”said Tisue.

President Trump's executive order is targeted to address thecoverage gap among small and midsized employers that do not sponsorplans, but the dramatic savings in audit costs alone begs thequestion of whether or not Open MEPs would encourage employers thatsponsor a single plan to seek pooled arrangements.

Tisue expects the mounting energy around Open MEPs will continueto grow with Labor's regulatory action, potentially disrupting theexisting plan market. “There's going to be so much buzz. Singleplans will have to consider joining MEPs.”

One bad apple rule reveals few bad apples

Buried in Treasury Department regulations for MEPs is theso-called “one bad apple rule.” A lone employer in a MEP that failsregulatory requirements could disqualify the plan's tax-advantagedstatus. Trump's executive order instructs regulators to yankit.

Power has never seen a bad apple in a MEP in his career, whichspans three decades. Tisue can think of two instances in his 18years providing MEPs. Both firms retain the power to spin outemployers if they fail their regulatory obligations.

While the one bad apple rule doesn't have much of a record fordisqualifying MEPs, both said that it has been used as a cudgel bysome plan advisors to dissuade sponsors from joining a pooled planand protect incumbent business.

“It's used as a scare tactic by some advisors—not everyone—butit does happen,” said Tisue.