Two trees sharing a nest of golden eggs Sometimes, getting ahead means venturing through aforest of unknowns. That's where we're at – or soon will be – whenit comes to 401(k) MEPs. (Photo: Shutterstock)

|

"Take your medicine, you'll feel better." "Eat your peas, you'llget stronger." "Use this new shortcut, you'll get therefaster." Sometimes getting ahead means venturing through aforest of unknowns. That's where we're at – or soon will be – whenit comes to 401(k) MEPs.

|

Once the IRS finalizes its fix for the "one bad apple problem," it'll be open seasonfor trade associations, Chambers of Commerce, and other affinitygroups to offer 401(k) MEPs to their member companies. Ofcourse, to do this, they'll need to become the plan sponsor.

|

Aye, there's the rub.

|

How many association leaders have sponsored stand-alone 401(k)plans, let alone the MEP variety of these retirement savingsvehicles? MEPs, more so than traditional 401(k) plans, are fraughtwith fiduciary landmines.

|

Yet, this shouldn't dissuade trade associations fromparticipating in what no doubt is the next evolution of workerretirement plans  (see "How to Address Top FiduciaryIssues for Trade Associations Sponsoring 401k MEPs,"FiduciaryNews.com, November 5, 2019).

|

Business associations exist to promote the best interests oftheir member companies. This concept – this purpose – melds nicelyinto the theme of fiduciary. So the concept is not foreign to tradeassociations. Only the application is different.

|

Still, adding a 401(k) MEP to the menu of member benefits isn'tlike the usual Chamber of Commerce offering. For example, in mostcases business associations offer benefits through a third-party.The member receives a discount and the association may receive anaffiliation fee. Sure, there may be a liability associated withoffering these types of benefits, but it's the kind of liabilitythat reasonable care and caution can reduce.

|

With a 401(k) MEP, although third-party vendors arehired, the association acts as the plan sponsor. There's actually apretty big advantage for the association doing this. Acting as theplan sponsor allows the association to collect a fee. The actualdollars collected would grow as the plan grows, making the 401(k)MEP option a potentially lucrative revenue-generating vehicle forthe association.

|

On the other hand, there's a down side. For most associations,that down side is shrouded in unknowns. That can make the down sideappear worse than it really is.

|

In effect, the liability is comparable to a plan sponsor of astand-alone 401(k) . There's good news and bad news in this. Thebad news: It most certainly represents far greater liability thanyou'd find with a typical association benefit.

|

The good news: The liability is a known quantity and we alreadyhave working models that can dramatically mitigate thisliability.

|

Associations seriously interested in sponsoring a 401(k) MEPhave a ready and willing source to access in their due diligenceprocess. Associations are likely to have member companies,including those that may serve on the association's board ofdirectors, that already offer stand-alone 401(k) plans. Thesemembers will be familiar with both the liabilities associated withsponsoring a 401(k) plan and the methods employed to mitigate thoseliabilities.

|

One of the most reliable methods is to hire industryprofessionals. This has the effect of outsourcing the bulk of theadministrative duties as well as a good chunk (but not all) of theattendant liability.

|

Here's where a word of caution comes in. Many members will havetheir favorite 401(k) vendors. These vendors may be excellent atservicing stand-alone 401(k) plans. But, remember, a 401(k) MEP isnot the same as a stand-alone 401(k) plan.

|

Associations will need to make sure the vendors they work withknow the MEP space and not merely the usual 401(k) space. BecauseMEPs are relatively rare (right now), there aren't a lot of vendorswith MEP experience.

|

Until associations can feel confident that the vendors availableto them come with the necessary experience, the fear of the unknownmay keep them from offering 401(k) MEPs to their members.

|

And that's not good news for their members.

|

READ MORE:

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
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).