The history, structure, current status and growth potential of open MEPs and PEPs are expertly dissected in a recent Pete Swisher article in Plan Consultant magazine.
Legislation to allow some form of the open multiple employer plan (MEP) is very likely to pass sooner rather than later, so it behooves all advisors and consultants to understand this form of plan design.
Most MEPs are “closed” MEPs, made up of two or more employers with some 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 relational commonality can participate in a 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. lower costs, fewer administrative burdens). Recently however, a slew proposals having unprecedented bipartisan support have been introduced to 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 separate companies to set up a single plan for ERISA purposes, thereby resurrecting many of the MEP benefits including affordability for small plans, and service from elite 401(k) advisors who currently find the small plan market simply unprofitable to serve. As proposed, PEPs also statutorily eliminate the one bad apple rule and the DOL’s nexus requirement. Alas, these solutions are indeed still in the proposal stages and, according to Swisher, the devil will be in the details.
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 plans. As an advisor or consultant in the retirement plan business, it is recommended that you actively seek MEP knowledge, strategies and solutions as this plan design is poised for significant growth. Pete Swisher’s in depth article is a great place to start.
Additional articles on MEPs and PEPs include: