U.S. Senator Orrin Hatch has introduced the Retirement Enhancement Savings Act (RESA) of 2016 in the U.S. Senate. It is widely anticipated that this bipartisan legislation will be included in the Continuing Resolution Bill that is expected to be signed into law on December 9, 2016.
Proposed bipartisan legislation will allow “open multiple employer plans” to be replaced by “pooled employer plans” – “PEPs” beginning in 2020 if the U.S. Senate Finance Committee has its way. Pooled Plan Providers – “PPP” or “P3” will be able to oversee these plans according to yet to be released regulations.
We’ll be making a new website that discusses the conversion process live shortly after the legislation is enacted, which is anticipated to be as early as December 2016 or early in the next Congress. Look for an announcement about http://www.MEP2PEP.com down the road. Read More…
The process of choosing a 401K investment manager depends on the plan so as the services to be given. Choosing the best retirement plan may result to either retiring happy or working longer than you should be. Selecting the best 401K administrator is a very important aspect in this process. Typically, a 401K plan is being governed by the employer.
In majority of cases, the employers assign a certain 401K plan administrator who will take care of the entire plan, looking over all employees or plan members who invested with the available retirement plan. Most of the 401K plan administrator contracts have expiration dates. Thus, if the retirement plan is not meeting the expectations, the employer has the right to look for a replacement firm, which of course, should perform much better.
Majority of the investment management firms have a section of the business devoted to 401K plan administration. One excellent method of searching for an appropriate 401K plan manager is looking in the region where the company or business is based. Nowadays, there are a lot of firms that offer 401K investment management service.
The internet is an explicit source for searching such firms just is entering certain keywords, like money manager, investment manager, or 401K plan provider. Another great trick to find the soundest 401K manager is to see the company or companies that majority of successful 401K plans are utilizing as their 401 plan provider for example http://www.theplatinum401k.com/.
Most of the private and public retirement plans divulge the portfolio of their plan at someplace. Typically, a public plan will showcase the investment managers who are engaged by the plan on their site, specifically through a yearly reported which is posted on the website. Aside from that, usually, the investment performance is outlined in these reports.
Therefore, by scrutinizing the returns and the company that is managing the plan, business owners can have a better view of what they should look for a 401K manager. The private retirement plans normally do not show their investment manager relationships on their site. However, in some locations, private retirement plans are mandated to file with the regulatory authority on a yearly basis; they should give some disclosures regarding the investment of the offered plan.
When choosing 401K managers, the fees must be considered. Depending on the retirement plan’s size, fee structures may vary from one 401K plan manager to another. There are times whereby the fees serve as the deciding factor, but it is typically a combination of costs and investment performance, and these are what lead the selection process.
There are as well times whereby the 401K manager or provider will negotiate fees to capture the interest of the business. Before making a final decision and finalize the selection process, business owners should allot time in interviewing prospect candidates, as well as gather historical information, especially about fees and performances. These will help company and business owners in selecting the soundest 401K investment manager.
As the election nears, 401(k) experts are keeping an eye on legislation that could make multiple employer plans (MEPs) an extremely favorable option.
MEPs have been around in some form since the 1960s, says Terry Power, president and CEO of The Platinum 401(k) Inc. A retirement plan established by one plan sponsor, a MEP can also be adopted by one or more participating employers. This vehicle transfers the fiduciary responsibilities and liabilities from employers to a MEP plan sponsor.
A closed MEP, explains Power, is where a nexus, or commonality, exists between the adopting companies (e.g., an association-sponsored plan exclusively for members). An open MEP has no nexus between adopters, although they might share a common payroll provider or geography.
Power became an “expert by proximity” — his practice was located in the Tampa Bay area, which in the mid-1980s was a veritable hotbed of employee leasing firms. By the early 2000s, these firms needed a professional employer organization (PEO) in order to use MEPs. His firm today is a third-party administrator for numerous MEPs.
“Initially, multiple employer plans gave companies leverage through economy of scale and service while mitigating fiduciary responsibility and requiring only one overall audit,” he says.
That all changed in 2012, when the Department of Labor (DOL) issued an opinion affecting open MEPs: If there was no commonality between employers — beyond a mutual administrative provider — the MEP would not be considered a single plan under ERISA. This meant that participating employers would have to file individual Forms 5500, conduct separate audits and adhere to other compliance requirements of individual plan sponsors.
Jason Grantz, QPA, AIFA, managing director/East for the Retirement Planning Consultant Group at Unified Trust Co., remembers this time clearly.
“Leading up to 2012, I was hearing about MEPs all the time,” he said. “Then, the letter came out.”
The conversation on MEPs turned silent, Grantz says.
“I don’t believe it was meant to be a ‘hammer’ by the DOL,” he says. “They were just accurately interpreting ERISA at the time.”
MEPs have picked up again, though, over the past two years, thanks to a bipartisan effort to loosen DOL restrictions. Read More…
Outsourcing is the hiring of a consultant from outside the company to complete a task or provide a service that they are better suited to do then your own employees. Many small to midsized plans are beginning to outsource 401(k) fiduciaries. Companies outsource many services, including payroll, auditing, marketing, legal defense, building maintenance, HR services and advertising, to name but a few. The reasons for outsourcing generally include:
- Cost savings
- Better outcome
- Cost savings
- Increased productivity
- Allows employees to do the things that they do best
Numerous business experts and consultants tout the benefits of outsourcing. “Do what you do best and outsource the rest,” says Tom Peters, management consultant extraordinaire. Former HUD Secretary Alphonso Jackson once stated, “When work can be done outside better than it can be done inside, we should do it.”
There is now a growing trend for 401k outsourcing services for many of the same reasons, but also because there are additional benefits in so doing, such as:
- Reduced liability
- Increased objectivity
- Fewer conflicts of interest
- Increased service level …. Read More
AN INTRIGUING new use of a long-established concept is catching the attention of small to mid-size plan sponsors seeking a way to simplify 401(k) plan oversight: Multiple Employer Plans (MEPs). By merging their plan into a properly structured MEP, employers cease to be a plan sponsor and effectively transfer many of the responsibilities and liabilities associated with being a named fiduciary to the MEP.
The MEP concept is exploding in popularity. Established under ERISA 413(c), MEPs historically have been used by companies that share a common industry or payroll provider, primarily association plans and professional employer organizations (employee leasing). However, as interest in outsourced fiduciary solutions has grown in recent years, a new generation of “open” MEPs for unrelated companies has sprung up. While MEPs can deliver tremendous benefit to many plan sponsors, an MEP is a solution in search of a problem for others. This article is written to help plan sponsors determine if this approach is a good fit for their organization.
The MEP sets up a single plan that covers all adopting employers, with the plan document generally written to allow for variation in plan design among the participating companies. Fund selection and monitoring generally are handled by the MEP. Discrimination testing and plan design (with some limitations) generally remain with the adopting employer. The shift in responsibility results in several potential benefits:
Elimination of annual plan audit:
Plans that cover more than 100 employees typically are required to have an annual plan audit performed as part of their annual plan Form 5500 filing. Under the MEP arrangement, there is still a plan audit, but only one that is performed at the overall MEP level. The annual audit that is required by each employer (now known as an “adopter”) is eliminated, resulting in significant savings to the employer.
Mitigation of fiduciary risk:
Independent fiduciary W. Michael Montgomery described the impact on fiduciary liabilities in Multiple Employer Plans as a Fiduciary Risk Mitigation Tool:
“Employers adopting a sound Multiple Employer Plan…achieves a profound reduction in fiduciary risk exposure. The reason is a simple one: The adopting employer ceases to perform certain key roles that incur fiduciary status. When an employer merges its current single-employer plan into a properly structured MEP, it is no longer the sponsor of the plan. It also should cease to be a trustee, plan administrator, or any sort of named fiduciary. Those central roles move to the MEP, and the inherent fiduciary liability transfers with them.”
The relief offered by MEP participation is extensive but not total. Certain responsibilities generally remain with the adopting employer, and even this reduced role must be taken seriously. Those responsibilities include:
- The need to make timely and accurate plan contributions.
- Plan design decisions, such as the level of match.
- The decision to adopt or de-adopt the MEP including necessary due diligence and monitoring of the MEP.
- Distribution to participants of required notices and information, though this may at times be handled directly by the MEP plan sponsor.
- Communication and enrollment assistance for participants.
Streamlining of plan operations:
In addition to the audit elimination, MEP adopting employers no longer file a Form 5500, maintain a fidelity bond, or shoulder the responsibility for 408(b) (2) compliance. These are handled by the plan sponsor that is associated with the MEP, not the adopting employer. For some employers, this benefit is inconsequential. For others, the desire to let outside experts run the plan can be more important than either the audit relief or fiduciary risk mitigation.
MEPs are not a good fit for every employer. Some plan sponsors already are mitigating their fiduciary exposure through a comprehensive, well-documented fiduciary process. Others don’t consider the cost or effort of an annual audit to be significant enough to justify making a change. Still others take satisfaction in staying engaged in plan oversight and fund monitoring. Simply put, if the advantages of an MEP appear to be solving a problem you don’t have, this approach is not for you.
An employer also should consider the potential limitations inherent in most MEPs. These may include the following:
- The adopting employer does not select its own fund menu. For many, this is a relief. Others want to have more involvements in investment decisions and consider this a takeaway.
- Loss of current provider. Though some MEPs offer a degree of flexibility, most are tied to a single record keeper or third-party administrator, so you will most likely have to leave behind your current providers to enjoy the benefits of adopting an MEP.
- “Bad Apple” impact: one adopting employer with serious compliance violations could cause the entire MEP to be disqualified, though a more likely scenario is that corrective measures will be taken. In the 20-plus years that I’ve been associated with Multiple Employer Plan clients, I’ve yet to see this occur. It is important that employers confirm the availability of a “disgorgement provision” in any MEP that they may be considering. This important plan design feature allows the MEP to quickly eject and thereby isolate any noncompliant adopter from the plan.
If these features are appealing and the limitations are acceptable, you may want to look further into the Multiple Employer Plan approach to your company’s retirement plan solutions.
I’ve been told by plan sponsors that they decided to join an MEP because these programs are handled the same way as their other employee benefit programs, where the benefit providers handle all the details. For example, while an employer could, at least in theory, negotiate with doctors, hospitals, MRI service providers, pharmacies, etc., for their employees’ medical coverage, most find it easier to outsource these micro-managed decisions to a third party—in that case, a health insurance provider that offers a group health-care policy.
There is a trade-off in control, options, etc., but there also is comfort in knowing that there are professionals at the helm and that they have a vested interest in making sure that their employees are taken care of in accordance with the terms of the arrangement.
Plan sponsors and their advisers will, of course, need to determine on a case-by-case basis whether these programs are a “fit” for their plans and their plan participants.
When the American Retirement Association reported last week that the Department of Labor had recently submitted a “final rule” to the Office of Management and Budget pertaining to “Savings Arrangements Established by States for Non-Governmental Employee”, it raised an inquisitive eyebrow.
There are questions surrounding the various structures associated with state sponsored retirement plan schemes for private sector employees that this proposed rule will likely address. The questions range from state sponsorship of retirement plans with a marketplace approach, to prototype plan formats, and – a topic close to my heart – multiple employer plans.
There has been a well deserved outcry from the private sector retirement plan community about the need for us to be able to compete with these new state-sponsored plans on a level playing field. The proposed state-sponsored “open multiple employer plan” format contains pretty much all of the features that we would like to see made available under private sector plan rules.
This format should be expanded to the private sector 413(c) multiple employer plans as well.
We anticipate that the submitted rule changes will include the elimination of a “nexus” or “commonality” among adopters, elimination of the “one bad apple rule” that could – in theory – disqualify a multiple employer plan due to the actions of a rogue adopter, allow for one global Form 5500 (with only one plan-wide annual plan audit) regardless of the number of adopters, and a few other upgrades that were somewhat restricted back in 2012 via a DOL Advisory Opinion. No one knows for certain what’s in the rule at this point. It’s anyone’s guess.
The 2017 U.S. Budget, as proposed by the Obama administration, contains $100,000,000 to allow for the expansion of multiple employer plans in an effort to broaden retirement plan coverage and simplify the duties and liability on employers who wish to offer a retirement plan to their employees.
The timing of the actions by the DOL not only ties in with the upcoming effective dates of some of the state programs, but they also may be preparing to set in motion the expansion of multiple employer plans as a private sector solution for the small to mid-market retirement plan sectors at the same time.
It would make sense for the Department of Labor to level the playing field by addressing some of the restrictive issues that currently hinder the rapid expansion of retirement plan coverage under a broader multiple employer plan availability. It would also tie in nicely with the wishes of the Obama administration and a bipartisan Congress to expand these programs before the upcoming election.
Maybe things are about to fall into place. We’ll know exactly what the new rules state no later than the end of October.