network of golden pins connected by wire Even though a 401(k) MEP can be structured toaccommodate most of the 'customizable' aspects employers seek,there are still limits on how much control they can have, and forsome, that's a dealbreaker. (Photo: Shutterstock)

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Let's talk about 401(k) MEPs by starting with a story. RememberKing Midas? He so yearned for gold that he wished everything hetouched would turn to gold. The good news? He got hiswish. The bad news? He got his wish.

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When Midas grew hungry, the food he touched turned togold. When he became thirsty, the wine he touchedturned to gold. When his beloved daughter Marigold (get it?) ran tohim, he touched her and she turned to gold. It's theclassic "Be careful what you wish for" story.

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Do 401(k) MEPs present a similar tale?

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Clearly, as with any new venture, employers shouldn't diveblindly into the 401(k) MEP pool (see "A Company Fiduciary Must Ask These Questions BeforeJoining a 401k MEP," FiduciaryNews.com, October 1, 2019). Forall the good MEPs offer, they do come with a potentialdownside.

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In this case, however, the reward may outweigh the risk – by alarge margin – at least for those who join, not sponsor, 401(k)MEPs. (Sponsoring a 401(k) MEP is a whole other matter. Perhapswe'll get to that in the future.)

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Let's look at the risks first. Set aside for the moment the "badapple" problem. This issue arises primarily in open MEPs when oneof the member companies breaches its fiduciary duty. This canpoison the entire MEP and potentially result in damage to the othermember companies.

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This is not an issue as much in closed MEPs, which are generallysponsored by trade associations, chambers of commerce andprofessional employer organizations. Following the DOL redefinitionof employer (which came out in July), this is the type of MEP weexpect most employers to be considering right now.

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So, if a "bad apple" scenario doesn't exist, what other risksmust employers consider?

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There are two: loss of control and lack of value.

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Any time you delegate to a third party, you forgo a certainamount of control. Even though a 401(k) MEP can be structured toaccommodate most of the different "customizable" aspects employersseek, there are still limits. For some employers, this could be adealbreaker. For these employers, the loss of control is too greata cost.

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On the other hand, some existing 401(k) plans may have alreadyachieved the economies of scale promised by MEPs. This isparticularly true for larger existing plans compared to startupMEPs. For these companies, the value of joining a 401(k) MEP maynot be there (yet).

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On the other, other hand, a 401(k) MEP offers immediate benefitsthat supersede any of these risks.

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For example, when the economies of scale benefit may not beavailable as described above, another factor may offer a fargreater advantage. This is the same upside that counters theloss-of-control downside.

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We're talking here about the quite valuable time savings thatcomes with delegation. Successful entrepreneurs know the importanceof avoiding tasks that can be more efficiently accomplished byothers. Think about it. Who brings the revenue into the business?In smaller firms, it's usually the same people assigned to run the401(k) plan. Imagine how much more revenue they'd be able to bringin if they didn't have to worry about running the company's 401(k)plan?

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That's a powerful value that simply can't be compared with thedollars and cents of economies of scale.

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Growing a sustainable business is the top priority for allbusiness leaders. Isn't that also in the best interests of allemployees?

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Sure, employees may have a best interest concern in theirretirement plan. They also have a best interest in making sure thecompany bathrooms are clean and sanitary. Does that mean thecompany president should be scrubbing toilets? Nope. It makes moresense to pay a professional custodian.

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The same can be said about retirement plan administration.Doesn't it make more sense to have a full-time professionalorganization take care of this?

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That's the reward of the 401(k) MEP. That's why it's going to bethe future of all 401(k) plans. Maybe not today. Maybe nottomorrow. But soon. And for the rest of your life.

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Sometimes the cure is worse than the disease, so be careful whatyou wish for. You may just get what you want.

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And that may be precisely what you need.

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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).