Discover MEPs - A Solution for your Small Business Clients

Jul 15, 2019

Multiple Employer Plans: MEPs can be a great tool for small business because they allow smaller companies to join together under a single plan. This “strength in numbers” approach makes it easier and more affordable to offer a market-competitive retirement plan to employees.

In this Multiple Employer Plan (MEP) webinar, learn the difference between Closed MEPs and Open MEPs and more including,
  • Pros and Cons of MEP legislation 
  • 5500 Requirements
  • Leaving a MEP 
  • 3(16) Fiduciary services for MEPs
  • Professional Employer Organization (PEO)
  • Pending Legislation and what that might mean: 
    • Secure Act
    • RESA
    • RSSA
    • Trump Initiative
    • Relief from One Bad Apple Rule
    • DOL’s Multiple Employer Rule
Multiple Employer Plans could play a very important role to help address the national issue of retirement plan coverage in the workplace. As a recognized leader in MEPs, Newport can help guide your efforts in this market. 

Click here to download a copy of this presentation.

If you have additional questions or would like to contact our Sales Team, click here.


Speaker 1:  Good afternoon everyone, and welcome to today's webinar from Newport. Before we get started, I'd like to go over a few items so you can better participate in today's event. In the upper right hand corner of your screen, you're going to see this control panel, and when you join today's webinar, you chose to listen either over the phone or via your computer's audio.

Speaker 1:  At any time, if you want to change, you can do so by clicking the audio functions in the control panel. You can also send us questions at any time during the webinar. You simply need to type into the questions pane. You'll also find that in the control panel, and we received a ton of great questions, and we're going to answer as many questions as we can at the end of today's webinar, and also you'll see a section in the control panel called handout.

Speaker 1: That's where you can download the the slides afterwards, and also a white paper that we have on today's topic. All that being said, I'd like to now hand this over to today's presenter. It's Mike DiCenso. He's an executive vice president here at Newport. Mike, take it away.

Mike: Excellent. Good afternoon everybody. Our goal today of this webcast is to help everyone to better understand MEPs overall, and the opportunity within the MEPs for advisors. As you take a look at MEPs, you know, our industry uses a lot of acronyms and MEP stands for a multiple employer plans. We're seeing a lot of activity around these multiple employer plans due to several legislative, and executive order initiatives that we'll go into here in a few minutes.

Mike: But when you look at these MEPs, and where the opportunities lie for advisors, there's a tremendous opportunity for advisors either to be the lead employer, and we'll get into that terminology as well throughout this presentation, and act as a 338, or 321 from the standpoint of the investment side of the MEP.

Mike: So, there's great opportunity. There is a lot of action around these MEPs, and we're seeing a lot of momentum to the fact that what we've seen in Congress, and what we're going to see here, I think over the next couple of months will surprise everybody just how quickly this moves. I want to open up with an the interactive question, and in this question we'd like you to answer with either open, closed, not sure, or none of the above.

Mike: Would an association of companies connected to the same parents with common ownership. Would this be an example of an open, or closed MEP? So again, would that be open, closed, not sure, or none of the above? And if you could just click on the white circle, and then we will tally the totals here, and give you the responses.

Mike:  All right, can we show the results? We see that 79% say closed. 8% say open, 8% not sure. 5% none of the above. The none of the above is the actual answer here, because this is a trick question. What you've got here in this question is, we have the common ownership.

Mike: That common ownership would more than likely make this a control group, or an affiliated service group, which under a control group, affiliated service group, that would not be a MEP, it would be a common plan. So, in this, we did it in this fashion, and function of asking the question in this manner so that we could help educate you on a number of different points that we'll be making throughout the presentation.

Mike: Now, as we take a look at what's happening with these multiple employer plans, the reason these are gaining so much momentum in Congress, and with Trump with an executive order, is from the standpoint that there are 55 million Americans who are employed in the workforce with an employer, but don't have access to a retirement plan at their place of work, and so the government is looking at this as a way in which they can actually help people save for retirement by relaxing these MEP rules.

Mike:  Now, there's two types of MEPs: There's open MEPs, and closed MEPs. We'll go through this further as well during this presentation, but as we look at the ongoing legislation to expand the MEPs, what we have is, first of all, we have Congress who has put out several acts: RSSA, RESA, they have put out the SECURE Act, as well as Trump with an executive to create a more open MEP type of program.

Mike:  So in this, what we see is one of the biggest reasons for this is we see that the states are out there offering state IRA programs, and these are payroll IRA programs. Right now in nine states, governors have signed off to launch their own state IRA programs. About four of these states have truly launched live with their program: California, Illinois, Washington, and Oregon. With this, we have 31 states that are looking at doing the state IRA program.

Mike:  Now, these programs are [inaudible 00:06:34], because they're automatic enrollment, but the issue is, is governing 50 different states with 50 different programs can be onerous for not only the regulatory bodies, but also for Congress. So, this is something that's being looked at very closely from the standpoint of these state IRA programs, and Congress was looking to more, or less cut this off, and create a national program, and that's what these MEPs are about.

Mike: It's about being able to band companies together so that they can have the efficiencies, and the cost effectiveness of a MEP program by coming together under a larger environment of programs. So, what you're doing is banding small, and midsize employers together under one plan, and gaining pricing, investment, and other efficiencies due to them coming into one plan together.

Mike:  Now, something else that we see out there in the environment today is that with the Regulatory Acts, the Secure Act, this act went through the house within the matter of about a month, and a half from introduction, to a recess, to a vote, and passed 371, to three, so unanimously. I don't know when the last time you've heard of a bill passing a 371, to three, but that is an overwhelming success.

Mike: It is now in the Senate where the Senate also has it's own act called RESSA, R-E-S-S-A. What is happening is there some slight differences between the two acts. What we believe is happening is that the senate is now combining those together taking bits, and pieces bringing us together under one program. There is a push for a vote here, and we'll see if they move on it. Rumor is, is that vote is going to take place within the next month.

Mike:  We'll see if it truly moves that quickly. We have also [inaudible 00:08:31] , which is out there to help to build retirement security, and savings. Then we have the Trump executive order where Trump has brought together the IRS, and the Department of Labor to look at closed MEPs, and open MEPs, and make open MEPs much more like closed MEPs. One of the things that has happened from the IRS, and the Department of Labor, it was about three weeks ago, they came out, and said that they're doing with the one bad apple rule.

Mike:  The one bad apple rule is extremely important to MEPs from the standpoint of the lead employer, and adopting employers. What the one bad apple rule is, is if one entity inside of the MEP has a problem from the standpoint of a fiduciary breach, if one plan went wrong, then all plans would go wrong, and so this one bad apple rule, if that goes away, that eliminates this, and this is something that everybody is focused on, not just with RESSA, not just with [inaudible 00:09:27] , not just with the Secure Act, but also with the Trump initiative.

Mike:  So this is a big, big piece of why MEPs in today's world have been slower to develop out there in the marketplace, but why we're seeing great momentum in these now is because that one bad apple rule is going away as well as all the legislative, and congressional focus on this.

Mike:  Next, let's talk about MEPs overall. Now, we're talking about multiple employer plans, not multi employer plans. This is a differentiator I want to make sure everybody understands. Multi employer plans are union plans, Taft-Hartley plans. These are very different than multiple employer plans, or MEPs. When we looked at closed MEPs, a couple of things that have to be in place is number one, you have to have a lead employer.

Mike: So, this is one employer with their employees in the plan where they are actually acting as the lead employer, and creating plan design, investment lineups, and others through the help of an advisor, as well as the record keeper, but they are taking on the lead role. So, other employers would adopt their MEP. With a closed MEP, commonality of ownership, and business need to be in place. So this is things such as, association plans. What you will see from these is that you will get efficiency of pricing, you will see the efficiency of service.

Mike:  You also see that there will be efficiency from the standpoint of fund lineups, plan design, and other in most MEPs, although you can have variances, and you can have different schedules, and we'll get into that, but you really get from the closed MEP is you have one 5500, one test, and one audit, and that includes one fidelity bond for the entire plan.

Mike: So, you're gaining a number of different efficiencies there than if you're, for example, have 100 entities inside of a MEP doing 100 tests, 100 5500's in 100 different audits, and this is why we go to the open MEPs. Open MEPs, you need a lead employer, again, just like you do in the closed MEPs. There's no commonality.

Mike: So in other words, you can have Joe's garage with a restaurant, with a manufacturing company, with an investment company altogether inside of one MEP, totally different firms, different industries, very unique from the standpoint of the way in which they operate their business, but they're coming together under the MEP.

Mike: Now in today's world, these open MEPs have separate audits, separate 5500's, separate tests, but they can gain the pricing efficiencies, because they are coming together from the standpoint of the size of the employee base, and the size of the assets. So, efficiencies in pricing, and process can still be gained, and each of these unrelated employers in these open MEPs has to set up their own separate trusts.

Mike:  So, suddenly it's even different than the closed MEP, but these are the variances between open MEPs, and closed MEPs, and you'll hear about these in the marketplace. The plus is, we're working with you, and helping you, and we want to go beyond just this presentation, and help you to understand this better one-on-one with our regional directors out in the field.

Mike:  Now, as we look at the definition of commonality for closed MEPs, the closed method is a single plan that is an employee benefit plan, that is there so that it is bringing in those related businesses. Now, these are businesses that are related, and have commonality, but they are not a controlled group, they are not under common control, and they are not affiliated service groups.

Mike:  So, there are questions, and things that need to be answered as to whether somebody can have a closed MEP, or whether they would proceed with an open MEP, and this is where we can help you as well in finding that direction. As you look at the differences between the lead employer, and the adopting employer, first of all, all employers still have fiduciary responsibilities, liabilities, duties, and obligations, but what happens inside of the MEP due to hiring other fiduciaries, I have the lead employer for 321, 316, 338, and a record keeper, and administrator that those duties for the adopting employer are lessened, because other fiduciaries have been hired.

Mike:  So with the lead employer, the lead employer will determine who is the administrator to come in, and do the record keeping, and administration, but they are the plan administrator for the entire plan. So, the plan administrator named in the document is the lead employer. The lead employers plan needs to be included in the MEP. Why? There has to be an employer, employee relationship for anybody that's sponsoring a MEP.

Mike: So in other words, can you start a MEP, and just allow individuals on their own to just come into the MEP? And the answer is no. It has to be planned. It has to be planned where there is an employer, employee relationship, and so that's a big point here with that lead employer is they have to put in today's world, their employees into the plan. Now, we were watching this closely to see what happens, again with what's going on with Congress, and what's going on with the Trump initiative as to how that evolves from a lead employer standpoint.

Mike:  When you look at the IRC code, when you take a look at the ERISA, you look at the standpoint of employee, employer relationships, and again, that [inaudible 00:15:12] . So, the lead employer holds the ultimate responsibility of fiduciary for the MEP. So, they have the ultimate hiring responsibility for that plan administrator, that record keeper of the 316, the 338, and 321 if they want to go fault the 321, or 338 together. They also will establish the working committee. Generally, inside of the MEP they will establish a working committee across companies that are adopting employers of that MEP.

Mike: Now lead employers, and this was one to truly highlight here, especially for you as advisors, lead employers can be compensated whether, or not they're registered, or licensed. So when you look at a MEP from the advisor side, an advisory firm is to start it's own MEP, put their employees into the MEP. You can still be compensated as a 338, you can be compensated on a fee basis, as an actual advisor, or a consultant, you can accept commissions.

Mike:  So the compensation, it does not matter if you're the lead employee, or not, you can be compensated. Now, as we go to adopting employers, the adopting are the employers who then join that MEP that the lead employer has established. So, the adopting employer has to evaluate the lead employer, and determine if they're competent, number one, then they have to on an ongoing basis, just like any fiduciary, you have to review, and benchmark how that lead employer is performing.

Mike:  So, are they doing what they said they would do? Are they staying in compliance? Those are the responsibilities of that adopting employer from a fiduciary standpoint, and they have to do this on an ongoing basis, and I would say at least annually.

Mike: Now, as you look at MEP plan design, what you have here is a lot of opportunity for variance, even for individuality between the plans. You can have different investment lineups across the plans for each adopting employer. Now, is that efficient? Depends on the situation, but it is an option, and you can have different waiting periods, investing schedules per adopting employer. Again, is that efficient? May, or may not be, but it's available, you can do it, and you have different types of MEP offerings between 401k, Safe Harbor, a 401k cash balance, a defined benefit, 403B.

Mike:  So, you can establish different types of MEPs, and so in this, you may want to establish more than just one MEP based off of what you're trying to accomplish with your employer base, your client base. So, there's tremendous flexibility there, and we can help consult you on that flexibility, and what you'll see over the next couple of pages, and I'm going to click through this for you, we've actually written a white paper on the MEPs, and it's a comparison of the open, and closed MEPs.

Mike:  We have this, as you see over here in the handouts, we can also send this to you, or you can obtain it from your local regional director that you work with. We are more than happy to share this information, help you to better understand MEPs overall, and the differences between the open, and closed MEPs.

Mike: Now, what I'd like to do is another polling question here. The question is: I'm an adviser who wants to start a MEP for my clients. Would this be an example of an open, or closed MEP? Please click on the circle that says either open, closed, or none of the above.

Mike: Open, closed, or none of the above, and now we'll have some jeopardy music. [inaudible 00:19:12] We've got the results, and the results are open 74%, closed 9%, 16% said none of the above. The actual answer is open. So, this is where an advisor who starts a MEP with their clients, more than likely their clients do not have commonality across the client base, probably in different industries. That would be an open MEP.

Mike: Next, a very important part of MEP is 3(16), the administrative fiduciary services. I think as you guys know, Newport is one of the largest 316's in the nation. As you look at our 3(16) services, what you see is we maintain all the data for distribution elections, beneficiary elections, loan applications, participant transactions, payroll, and census, and salary deferral changes.

Mike: We also handle the distribution process for every type of distribution: Terminations, death, disability, RMDs, hardships, quadros, and rollovers. Now, Newport is a fiduciary on each of these actions. We are truly fulfilling a fiduciary action, and what we're doing is we're reviewing the transaction. We are approving the transaction, we're signing off, signing the paperwork as the fiduciary, and we're then distributing on the transaction.

Mike: So, we are fulfilling that fiduciary duty on these roles in which we play, and we do this so that we bring together not only bringing protection from the standpoint of fiduciary liability, but also efficiency to the plan sponsor, and managing the plan, and also helping to lead potential conflicts of interest. When you look at some of these transactions, you can run into potential conflicts of interest. So you take a hardship withdrawal. You have a very valued employee who's having financial difficulty.

Mike: Number one, they don't want to come to the employer, and ask for a hardship withdrawal, but they do. They actually don't qualify for the hardship rules as they're written in the plan documents, but the employer says, 'Hey, this is one of my key employees. I want to do this for him anyway', and they execute that transaction. In that situation, you could potentially have a conflict of interest, and self dealing, in which would be fiduciary breaches, and you didn't follow your plan document, which is another breach.

Mike:  By having Newport as the 3(16) fiduciary on this, we take the employer completely out of that situation. The employee is working with Newport directly, not with the employer in any way, shape, or form on any of these transactions. So, Newport takes the lead role on all of these transactions from the standpoint of fiduciary perspective.

Mike: Now, as you take a look what else we do from our 3(16) services, with the plan document required disclosures, we truly interpret that plan document, look at eligibility, the annual allocation, and contributions investing. We actually will give consulting as far as what may be done for that plan sponsor for their employee base, based off of what the plan sponsor is trying to accomplish. With reporting disclosure, we deliver the summary plan descriptions, summary of material modifications, statements, required notices for quadros, QDIA, Safe Harbor, required fee disclosures as well, and then we do the full form 5500 preparation.

Mike: Now, we do not sign the 5500 as a 3(16). The reason we don't sign the 5500 is, we're not signing on as a plan administrator. Now, why don't we sign on as plan administrator? We don't sign on as plan administrator, because as plan administrator, if we felt the advisor was doing something incorrectly, or overcharging, we would have to terminate that advisor, also with the employers committee. So, that committee of those employers inside of the MEP, if we felt one of those committee members did something incorrectly in our view, we would have to terminate that employer, not the plan, but that individual that is on the committee, and we don't want to be in that role.

Mike: We don't want to be in conflict with the employer from the standpoint of who's on the committee, or the advisor who is our client, and we are working together in partnership with this MEP, or other retirement plans. So, this is a very big point as to why we don't sign on as the plan administrator. Now, why we don't sign the 5500, we'll fully prepare it, we'll even mail it into the IRS office. What the issue is, is if you are not the plan administrator, and you signed the 5500, it's a red flag for an audit.

Mike: So, we don't want to create that audit situation by signing the 5500 when we're not the plan administrator. Efficiency is a big part of 3(16), especially with MEPs. This creates a tremendous efficiency for the lead employer, and for the adopting employer across all the plans that are inside of that MEP.

Mike: Now, another area where, especially with MEPs where you can run into challenges with efficiency, and operation is payroll. So, Newport has developed different payroll solutions for different needs. So under our payroll solutions, you do either self-service payroll where you're doing the payroll yourself, you're fixing all the errors, fixing all the warnings. You can do payroll integration with one of our payroll partners from the standpoint of a 180 integration, or a 360 integration, or it can use our new Newport payroll service.

Mike: Now, it's not that Newport is actually a payroll provider, but what we're doing is we are running, and we are reviewing, and we are making sure that the payroll process is running efficiently, and running correctly. So with the self serve, this is where the employer is simply going to upload the company's payroll file to our sponsor access website, and so in this, the information goes in, goes out.

Mike:  With the integrated payroll, these are with our providers that we have partnerships that are 180, and 360. With the 360, it is a full back, and forth, and those are Paylocity, and Core Pay today. As we look at the 180 partners, it's ADP, Paycom, Paychex, Namely, ConnectPay, Ceridian, Ultipro, and Complete Payroll.

Mike: We're working on a number of others on the 180, and even more on the 360. So, there is a lot of momentum here around payroll, because it is so important with retirement plans, and especially MEPs. Now, with the Newport solution, and payroll service, what happens is the company uploads payroll file to our sponsor access website, and we will fix the errors, and the warnings.

Mike: So, we will cleanse the data, and there is a charge for the service. So again, going through the different payroll operations that we can deliver is number one, it's self-serve payroll, there's no charge. Integrated payroll for 180, and 360, there's no charge unless we're fixing the errors, and the warnings, and in that one 180, and 360 arrangements that we have with those outside providers, it's $25 per payroll for us to fix the errors, and the warnings.

Mike: Now, if Newport is doing the full integration of payroll, and we're fixing the errors, and the warnings, and it is the 360 with any payroll provider through the plan sponsor, then that is $40 per payroll. Again, when we look at the 3(16), and we look at the payroll solution brought together, what you're doing is gaining tremendous efficiency for the HR department, for the plan sponsor, or for the lead employee on a MEP, so that now this process is extremely efficient, and running smoothly for the implementation, operations, and process of the plan.

Mike: Now, why Newport ? Newport is one of the market leaders in MEPs today. We have over 120 MEPs nationwide that are open, and closed. Our largest MEP in the nation has over 200 entities in it, and so with this, we have tremendous opportunity, knowledge, and thought leadership to bring to you to help you to set up these MEPs properly, and help you to aid your clients, and create a more efficient process in serving them in the future.

Mike: With that, what I want to do is open up the presentation for questions. I've seen a number of them come in during the presentation, and so I want to address those now. If you have questions as well, feel free to type them into the system, and we'll get the through those as much as we can here over the next few minutes.

Speaker 1:  Yeah, Mike, we've received a lot of questions. Here's the first one: Will each participating employers still have to do separate coverage testing, separate non-discrimination, separate top-heavy, et cetera?

Mike:  In today's world, yes, we believe that what's happening in Congress, and with the Trump initiative is going to change that, and it will evolve. We do believe that it's going to be more like a closed MEP, but in open MEPs today, the answer is yes. Closed MEPs, the answer is no.

Speaker 1: Next question is: Who would serve as plan sponsor to an open MEP?

Mike:  The lead employer would be the plan sponsor to the open MEP. That'd be the lead employer, and then the adopting employer would be the plan sponsor for their plan that is joining the MEP, and those are actual terms that are utilized in the regs, and in Department of Labor regs. So, lead employer, and adopting employer, that's the terminology that's actually used. So, the lead employer is the one who's sponsoring the MEP, the adopting employer is the one that is adopting to join that MEP for their employees.

Speaker 1: Next question for you, Mike: How do you handle signing authorization adoption agreements, and service agreements for individual employers participating in a MEP?

Mike: Yes, they will sign paperwork just like with any plan. You've got the lead employer that has special documents, but then every adopting employer will sign documents as well. There will be a paper trail for all the decisions. I'm sorry. There will be a paper trail for all decisions, and it is a retirement plan.

Speaker 1: Next question we have here is: What's the benefit, or value add of a MEP over a traditional plan with participating employers?

Mike: You know, it really depends on the situation of the employer, and what they're trying to accomplish for their employees. What we find is a lot of small employers, and midsize employers don't offer a plan at the place of employment to their employees, because of costs, because the fiduciary responsibility, and because of the consuming time that it would take them to run the plan operationally, and so therefore, what would happen if they joined a MEP is, it would take the cost issue down for them. It would make it more reasonable cost-wise. It would create great efficiencies from the operations, and process side, and it would help with the fiduciary liability.

Speaker 1: Next question for you, Mike: Who has the investment selection, fiduciary responsibility, and what freedom does each individual employer have when it comes to customization?

Mike:  Great question. It's the lead employer that makes those decisions, and the lead employer determines whether others can have in their plan, a different lineup, or different selection of funds. That is allowed under the regs today, but as we look at it, we'll see what changes with that going forward.

Mike: I don't see that going away, but with that, you have lesser efficiency when you have multiple fund lineups per plan, per MEP. The most efficient way to run these plans as have one fund lineup for the entire MEP, but you can have variances, they are allowed.

Speaker 1: And I see that we still have more questions coming in, so we'll try to get to as many as we can. The next one that I have here is: How do we as advisors get involved, and compensated in this area?

Mike: Great question. From the standpoint of advisors being compensated, they could be compensated as a 321, they can be compensated as a 338, they can be compensated for being the lead employer, and then be compensated as 321, and 338, or even additionally, from the standpoint of being a consultant, of being the plan administrator.

Mike: There are a number of ways in which they can be compensated, and again, as the lead employer you are allowed to be compensated. So, we can talk through that with advisors, and educate them on different approaches, and the ways in which they may want to be involved with the MEP from that lead employer role.

Speaker 1: And the last question that I have here, and again, we're seeing these questions come in, and we'll work on answering them, and circulating the answers back to your questions, but the last one that I have here, Mike is: If a company wishes to leave a MEP, and they no longer have any plan whatsoever, do they need to spin off into a standalone plan in order to terminate it, or can they have employees take just distributions directly from the MEP?

Mike: Yeah, if they're in the MEP, and they're going to terminate the plan, they have to go through the plan termination process of that plan. Now, something else, a plan can remove itself from a MEP. So, say I'm an employer, and I grow dramatically, I had 200 employees when I was in the MEP, now I have 2000 employees.

Mike: I think I'd get greater efficiencies on my own, or I just want to have my own standalone plan. I can remove my plan from the MEP, and start my own plan again. So, there's a lot of flexibility, and options here for how these things work, but if you are terminating a plan from the MEP, and truly terminating your plan, you go through the normal termination proceedings with that plan.

Mike:  I think that is the last question for now. I do see some rolling in, but what we'll do is we're going to reach out to everybody here, and provide you again with this actual presentation, our white paper, a list of the questions that have come in with the answers.

Mike: I mean, feel free to either email me at my email address, which is, and I'll be more than happy to number one, get your question answered, but number two, get you in contact with your local regional director with Newport. Well, I appreciate everybody's time today. I know everyone is busy out there. I really appreciate you participating in the webcast. Thank you very much, and have a great day, and we look forward to work with you on setting up your MEPs. Thank you.

Unauthorized access is prohibited. This site is designed for U.S. residents only.
Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Fiduciary consulting services are provided through Newport Group Securities, Inc., an SEC-registered investment adviser and FINRA-registered broker-dealer, and InterServ, LLC, an SEC-registered investment adviser. Newport Group Securities, Inc. and InterServ, LLC are affiliates of Newport Group, Inc. All securities transactions are provided through Newport Group Securities, Inc., in its role as broker-dealer. All fiduciary consulting services are provided through the registered investment adviser. when offering variable insurance products, Newport Group Securities, Inc. acts solely in its capacity as a broker-dealer.
Trust and custody services provided by Newport Trust Company, a New Hampshire state chartered trust company and wholly owned subsidiary of Newport Group, Inc.