By one expert's read, theproposal is the largest expansion possible given Labor's limitedauthority, which regulators reference in the document. (Photo:Shutterstock)

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The Labor Department's proposal to broaden access to workplaceretirement plans by way of Multiple Employer Plans does not includea pathway for so-called Open MEPs, which allow small businessowners with no shared business association or interest topool workers under one defined contribution plan.

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The proposal aims to clarify a 2012 sub-regulatory action by theObama administration that required employers to share commonality,or a nexus, such as membership in a trade organization, in order tobenefit from the full administrative and fiduciary relief MEPspromise.

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Labor's proposal continues that policy. But it also extendsemployer participation in MEPs to unrelated businesses within thesame state or municipality.

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In doing so, the proposal opens the door for local chambers ofcommerce to sponsor retirement plans for their members.

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Though it stopped short of rubber-stamping Open MEPs, whichwould not limit participation to locality, Labor said that itconsidered the option, “but decided not to include such categoriesof MEPs in the proposal because they implicate different policyconcerns.” Labor did not expound on those concerns.

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Several legislative proposals in recent years green-light OpenMEPs, a fact acknowledged in the proposal.

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Still, in leaving out Open MEPs, Labor can expect stakeholdersto ask why.

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The Department's policy concerns are difficult to surmise, saidAron Szapiro, director of policy research at Morningstar.

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“There is a reason people have been trying to get Congress toact on this issue,” Szapiro told BenefitsPRO. “The way ERISA (theEmployee Retirement Income Security Act) is construed, I don'tthink Labor believes it can go to full Open MEPs without Congressacting. Without affirmative Congressional action, I don't thinkthey feel they have the legal authority.”

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By Szapiro's read, the proposal is the largest expansionpossible given Labor's limited authority, which regulatorsreference in the document.

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“The Department's proposal is more limited because it reliessolely on the Department's authority to promulgate regulationsadministering title I of ERISA,” the proposal explains. “Unlike theDepartment, Congress has authority to make statutory changes toERISA and other areas of law that govern retirement savings, suchas the Internal Revenue Code.”

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Szapiro, and Morningstar, have been champions of leveraging OpenMEPs to address both the plan access gap and cost inefficiencies inthe existing small-plan market.

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But he cautions against irrational expectations, even in thecontext of fully Open MEPs. Labor's more limited proposal shouldfurther temper expectations.

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“We don't think MEPs will radically change the U.S. retirementsystem—we need to be realistic about what they can accomplish,”Szapiro said. “Because the proposal is limited, we don't think itwill move the needle a lot. Still, there is no reason not to dothem.”

“Love fest” for PEOs

If Congressional action is required to create Open MEPs, it isnot required to close them.

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Labor instituted the commonality requirement in 2012 absentinput from Congress. In fact, the action was done outside the morethoroughgoing rule-making process — it was created in an advisoryopinion letter.

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Troy Tisue, president of TAG Resources, a fiduciary provider ofMEPs, thinks Labor's proposal raises more questions than answers,and fails to follow President Trump's executive order, whichestablished the expansion of workplace retirement plans as formalfederal policy.

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“Commonality is not a law—Labor made that up in 2012. It was aninterpretation, not an act of Congress,” said Tisue, whose inquiryto the Labor Department was the genesis of the advisoryopinion.

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“Labor is choosing to do this very selectively, which iscurious,” added Tisue.

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The proposal explicitly prohibits retirement industry serviceproviders — recordkeepers, broker-dealers, insurance companies,third-party administrators, and potentially firms like TAGResources — from sponsoring MEPs.

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“Labor doesn't feel they have the authority” to effectivelyanoint MEP provider channels, explained Morningstar's Szapiro.

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But even as the proposal prohibits retirement industry serviceproviders from sponsoring MEPs, it gives a forceful endorsement forProfessional Employer Organizations, or PEOs.

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PEOs serve as outsourced human resource departments forbusinesses, handling payroll and benefits administration, amongother things. Under the proposal, a PEO would be able to offerMEPs, but only to businesses that use its administrationservices.

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“If Labor doesn't have the authority to remove commonalityrequirements for MEPs, then why can they be so restrictive on whocan provide them,” said Tisue, who founded TAG and has beenexclusively providing MEPs for nearly two decades.

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“It's a love fest for PEOs,” Tisue said of the proposal. “Labordoesn't provide any clarity into that.”

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The proposal limits what MEPs can do to address the retirementplan access gap, thinks Tisue. Employers that don't sponsor a plan,don't use a PEO, and are not chamber members, will have to pay foroutsourced HR services from PEOs, or join their local chamber tojoin a MEP.

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“I don't know that that will expand participation in retirementplans,” said Tisue.

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“Labor missed the mark on this one, and I suspect that will beraised in comments. The proposal seems rushed, and inconsistentwith Asst. Secretary (Preston) Rutledge's previous work on MEPs.However, Labor might be offering a limited solution based oncurrent regulation as they wait for Congress to act,” addedTisue.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.