MEPs Part Two - You’re A Chamber of Commerce: Should You Sponsor a MEP for Your Members?
This is the second in a series of posts on the U.S. Department of Labor’s proposed changes to the Multiple Employer Plan (MEP) rules.
In last week's installment, we briefly described the major considerations in adopting a MEP arrangement. Today, we focus more specifically on these considerations and what it means for you in practice.
Note: These posts assume the amended DOL rules permit a chamber of commerce would, when finalized, permit it to sponsor a MEP that is considered a single plan for purposes of ERISA. The proposed rules would also open such sponsorship to other types of organizations such as professional employer organizations (PEOs). Next week we’ll take a closer look at these organizations.
MEP sponsorship in general.
You, the chamber of commerce, will sponsor the MEP and as its principal sponsor (“plan sponsor”) will execute a master contract under which members of your organization may adopt the plan. You, acting through your board of directors, will make decisions about the specific terms of the plan such as eligibility for participation in the MEP and contributions. You will also decide whether individual adopting employers will be able to vary the terms of the Plan or whether the MEPs provisions will be uniform for all adopting employers.
In this schema, you will contract with a third-party professional to be your MEP’s plan administrator and named fiduciary. They will assume fiduciary responsibilities that would otherwise be yours. Thus, the responsibility for overseeing the day-to-day administration of the Plan and the hiring of the recordkeeper, custodian, TPA, and others will their responsibility, not yours. Your fiduciary responsibility under ERISA and exposure is thus limited to hiring and monitoring the performance of that professional. Your focus as a fiduciary will be determining can they do the job at a fair price and the overall reasonableness of the arrangement.
Who will be the plan service providers?
The plan administratorgenerallywill appoint the following service providers.
A recordkeeper and custodian responsible for allocating contributions to individual participant accounts, keeping track of investments in those accounts, and for following participant directions when they want to change investments in their accounts. The recordkeeper may also have a plan website, call center, and other services for participants and participating employers through which plan business is transacted.
A TPA or “third party administrator to make eligibility determinations, calculate vesting service, calculate distributions, effect participant loans, prepare annual information returns, and do discrimination and other testing as required under the Internal Revenue Code.
An investment adviser to recommend the investment lineup
What is the ERISA standard of conduct for plan fiduciaries?
You, the plan administrator, and any investment adviser will be subject to the fiduciary responsibility provisions of ERISA. This means that you and the others will be held to a very high standard of conduct, including that you must act for the exclusive benefit of plan participants, follow a prudent and considered process, and avoid prohibited transactions with interested parties. Your failure to adhere to these standards may mean that you could be responsible for losses to the plan, that you may be subject penalties, excise taxes, and other sanctions. In practice this means you must choose your plan administrator and named fiduciary wisely, seek to pay only reasonable fees, and oversee the plan administrator’s management of the MEP. You can reduce your exposure to liability by using an independent and disinterested, expert adviser who can help you in the many areas where you have no expertise.
How does my organization go about establishing a plan for member/employers?
You should consider first finding an independent and knowledgeable advisor or consultant. Remember not every adviser or consultant will have experience dealing with plans that involve multiple adopting employers. An adviser can help you establish the criteria that will be important to you in your search and find providers capable of meeting them. The initial rollout of your MEP will be critical to its success so you will want to find a partner having communication abilities and a history of successful rollouts.
How do member/employers adopt the plan?
Employers execute a participation agreement setting out the rights and obligations of the MEP and the participating employers. As mentioned above, the structure permits individual employers not to be directly responsible for overall plan compliance and investments. Their responsibilities are generally limited to selecting and monitoring the MEP provider. The participation agreement will also set out the specific provisions of the Plan that apply to the participating employer. For example, within the limits of the plan document (that you determine) participating employers may have the option to select individualized eligibility, contributions and vesting provisions. Your advisers and TPA can help you with determining the design options that will be made available under the plan.
Should you adopt a 401(k) plan for your member/employers?
As you can see from the foregoing, establishing a plan for your members imposes fiduciary responsibilities and risks, and other burdens on your organization. Although day-to-day administrative chores can be tasked to your plan administrator, you still have responsibilities that cannot be avoided. A wise approach is to do your homework before you decide to offer a MEP to your members. This means determining whether the arrangement can deliver lower or at least equivalent costs to what your members can get on their own. It also means finding providers that are capable, credible, experienced and reasonably priced. It should be lost on no one that the arrangement you bring to your membership will put your credibility at stake. Finally, there is no point in setting up a MEP if your members are not interested. You will therefore want to survey interest before getting in too deep.
In our next post on this topic, we will discuss the concerns employers should have in considering the adoption of particular MEP arrangements.
There is help readily available to you in this decision making and in managing the responsibilities of sponsoring a MEP if you go forward. In our view, the opening up of the MEP market provides a significant opportunity for Chambers of Commerce, as well as a wide range of other associations, to add real value for members, especially smaller businesses who struggle to offer competitive benefits to their employees. Fiduciary Plan Governance can assist you in understanding and evaluating this opportunity. If you’d like to know more, you can contact us directly anytime at firstname.lastname@example.org for a brief, no cost or obligation consultation.