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Multiple Employer Plans, Revisited

Some commentators are convinced that the U.S. Department of Labor is about to put the hammer on MEPs

W. Scott Simon, 10/06/2011

Have a comment, insight, or burning opinion on this article? Make your feelings known in the comments section at the end of the article.

There seems to have been an uptick lately in the number of multiple employer plans (MEP) coming to market, including those sponsored by third party administration (TPA) firms. Perhaps in response, representatives of the U.S. Department of Labor (DOL) made some informal comments about MEPs at a small gathering of retirement plan service providers earlier this year.

A blog written by a prominent attorney in attendance at that meeting garnered a lot of attention in the blogosphere--including a wide array of opinions about a number of issues concerning MEPs. In the course of those online discussions, some participants appeared to have talked themselves into believing that the DOL was going to ban any and all MEPs as a danger to human life as we know it on the planet Earth. Even the American Society of Pension Professionals & Actuaries got into the act with its own Code Red Special Alert Bulletin.

In my August 2009 column, I described MEPs as the "platinum standard" of qualified retirement plans. In retrospect, I should have been more exact in my phrasing: MEPs, when run by experienced independent fiduciaries and featuring transparent, low-cost, and broadly and deeply diversified investment options, are the platinum standard of qualified retirement plans.

According to data supplied by BrightScope, 2,747 plans (of 213,562 plans) filed as MEPs on long form 5500s in 2009. Other sources indicate that there were 3,530 MEPs (holding 401(k) and profit-sharing plans only) holding $500,000 or more of assets in 2009, totaling $169 billion and 3.2 million participants. When welfare benefit and defined benefit plans are included, the number of MEPs holding $500,000 or more of assets in 2009 increased to 4,118, totaling $290 billion and 5.9 million participants. Some MEPs invest and manage billions of dollars (with nearly 50 each holding at least $1 billion in assets as of 2009), and have hundreds of participating employers (also referred to as adopting employers).

As would be expected from such large numbers, there will be a wide variation in outcomes. Some sponsors of MEPs retain highly experienced independent fiduciaries that are well-versed in the intricacies of MEPs. These sponsors require that the investment options in their MEPs have low and transparent costs, and have broad and deep diversification--which results in keeping more money in the pockets of plan participants. This requirement is in line with what should be the ultimate goal of every retirement plan: to provide plan participants (and their beneficiaries) with retirement income security that maximizes the odds that they will have a comfortable retirement.

Other sponsors of MEPs retain experienced independent fiduciaries that restrict plan participants to investment options with high and hidden costs, and poor diversification--which results in keeping less money in the pockets of plan participants. Then there are those MEP sponsors that are soundly incompetent: They don't know what they don't know. Their MEPs are run poorly and have poor investment options, which, of course, directly harm the very people that they're supposed to benefit: plan participants (and their beneficiaries).

The third part of my four-part interview with Jeffrey Mamorsky in November 2010 covered MEPs. Mamorsky played a central role in educating and advising the congressional staffs that drafted ERISA in the early 1970s. Now co-chairman of the global benefits and compensation group at Greenberg Traurig, LLP, Mamorsky has had significant experience with MEPs and discussed them in his CFO.com column recently. As a result, I thought it would be interesting to get his views on a number of issues concerning MEPs.

W. Scott Simon is an expert on the Uniform Prudent Investor Act and the Restatement 3rd of Trusts (Prudent Investor Rule). He is the author of two books, one of which, The Prudent Investor Act: A Guide to Understanding is the definitive work on modern prudent fiduciary investing.

Simon provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. He is a member of the State Bar of California, a Certified Financial Planner, and an Accredited Investment Fiduciary Analyst. Simon's certification as an AIFA qualifies him to conduct independent fiduciary reviews for those concerned about their responsibilities investing the assets of endowments and foundations, ERISA retirement plans, private family trusts, public employee retirement plans as well as high net worth individuals.

For more information about Simon, please visitPrudent Investor Advisors, or you can e-mail him at wssimon@prudentllc.com

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar.

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