Pete Swisher recently published an article laying out the history, structure, current status and growth potential of MEPs and PEPs. Since NWPS is also a provider of services to MEPs we thought this was worth sharing.
Most multiple employer plans are termed “closed” MEPs, made up of two or more employers with some preexisting common relationship that does not rise to the level of a controlled group or affiliated service group. Trade groups, associations or simply companies with some business relatedness can participate in an MEP.
Conversely, companies participating in “open” MEPs have no such commonality. Open MEPs were thought to be allowed in the early 2000s, until the DOL cast doubt on whether it viewed open MEPs as a ‘single plan’ for ERISA purposes, among other concerns, thereby quashing the many benefits of open MEPs (i.e. fewer administrative burdens and therefore lower costs).
Recently however, a slew of proposals have been introduced to clarify and reinvigorate the MEP. Many of these proposals have common elements including eliminating the “one bad apple’ rule (the concept that one noncompliant employer could jeopardize the entire MEP), the common relationship requirement (a.k.a. the nexus requirement) and most interestingly, the creation of a new MEP structure: the pooled employer plan or PEP.
A PEP is a type of MEP that, if certain requirement are met, will allow unaffiliated companies to set up a single plan for ERISA purposes, thereby resurrecting many of the MEP benefits including affordability for small plans, and high quality services and investments currently unavailable in the small plan marketplace. As proposed, PEPs would also statutorily eliminate the one bad apple rule and the DOL’s nexus requirement. To be sure, these solutions are still in the proposal stages and until finalized this is somewhat speculative.
Nevertheless, it appears to be only a matter of time before MEPs and/or PEPs become a significant factor in the smaller end of the 401(k) plan market. Interest is widespread: knowledge and understanding of MEPs is not – a classic definition of an opportunity. Advisors in the retirement space would do well to understand this form of plan design.
Additional articles on MEPs and PEPs include: