What is a Multiple Employer Plan?
When it comes to standard retirement plans, an employer will choose to sponsor a retirement plan from a specific provider. As the sponsor, the employer is responsible for administering and maintaining the plan, which can be both time-consuming and costly--especially for smaller businesses. One alternative is to participate in an MEP (Multiple Employer Plan). An MEP is a retirement plan sponsored by a single employer and shared with a group of other employers. If you’re a participating employer, you’ll essentially leave the majority of the plan’s responsibilities to the plan’s sponsor.
How Will it Benefit Your Business?
While your employees will be limited to the investment options that the plan’s sponsor has chosen, an MEP does provide a lot of flexibility to participating employers; for example, you’ll be able to establish your own eligibility requirements. Additionally, as an employer, there are a number of advantages to participating in an MEP instead of sponsoring a retirement plan on your own. These include the following:
MEP Will Meet Small Business Objectives
Participating in an MEP might not seem like it would affect your company’s business objectives, but it will -- and in a positive manner. Consider these ways in which an MEP can help you achieve your small business objectives:
Save Time and Money
It can be expensive to set up a retirement plan as the sole sponsor. Since participating in an MEP means that you will be joining an existing plan, there won’t be any startup costs. The time you would have spent monitoring and maintaining a retirement plan can be focused on more pressing business-related matters.
Reduce Fiduciary Responsibilities
One of the drawbacks of being the sponsor of your own plan is that you will have the primary fiduciary responsibilities, which includes investment responsibilities. This requires that you constantly monitor funds and regularly consider your investment options. With an MEP, you relinquish those responsibilities to the plan’s sponsor. That sponsor is responsible for ensuring that the plan remains in full compliance with DOL and IRS regulations. However, as a participating employer, do your due diligence and make sure that your sponsor is a responsible sponsor.
Help Small Businesses Compete for Talent
Small businesses often don’t have the means to set up their own retirement plan, especially since it can be difficult to determine a budget when you don’t have a good idea of how successful your business will be within the first few years. Unfortunately, not having a retirement plan can be detrimental when it comes to hiring full-time employees. Few job candidates will accept a job offer without retirement benefits. They will be more likely to join a competing business that does offer a retirement plan. By participating in an MEP, you’ll be able to extend more competitive job offers to potential employees.
Provide Economies of Scale
One of the biggest advantages to participating in an MEP is saving money as a result of the economies of scale. The more employers join the plan, the less the plan will cost you, since all of the participants will share in the costs of the plan’s administration. You’ll also have more buying power with multiple employers when it comes to negotiating with the plan’s provider for certain services or investments.
Access to Low Cost Institutional Investments
One of the biggest challenges of setting up your own retirement plan is deciding what investment options to provide employees. This can take a lot of work and requires a lot of expertise, which is exactly why many businesses hire financial advisors to help. When you join an MEP, the plan’s sponsor will have already decided on a menu of investment options to choose from, providing your employees with access to low cost institutional investments.
Besides being more affordable, administration of the plan will be much easier as well. Most of the administration responsibilities will fall on the plan’s sponsor. There will be substantially less paperwork if you participate in an MEP than if you set up your own retirement plan. This is because the MEP will be considered a single plan for auditing purposes, and participating employers are not audited individually. Instead, only one audit will take place on the plan every year andonly a single Form 5500 will be required by the DOL.
Expert Governance and Oversight
Most of the responsibility of governance and oversight won’t fall on you, it will fall on the MEP’s sponsor. When it comes to MEPs, there tends to be a lot more governance and oversight. This is because the sponsor is liable not just for their plan, but the plan of all of the participating employers. As a result, the attention to detail will be much greater with an MEP. As a smaller business, odds are you wouldn’t be able to match such oversight on an individual plan without paying for expensive professional assistance.
Streamlined RECORD-KEEPING and operations
The typical MEP will provide participating employers with a comprehensive package of services that includes plan design and consulting, document and technical support, fiduciary protection, regulatory compliance, investment managing, administration, and recordkeeping. This makes operations and recordkeeping in general much more streamlined. A data aggregator will often be used to collect payroll data from all employers to a single format that the recordkeeper can use. Additionally, the record-keeper will audit your payroll for potential issues, keep accurate contribution records, and check distribution and loan requests against the plan’s policies on your behalf.
Professional investment management
The sponsor will likely hire the help of a professional financial advisor or financial institution to help manage the investments of the plan. This ensures that your employees will have access to solid investment options that provide plenty of growth potential while limiting risk.
How Will it Benefit Your Staff?
While an MEP can be very beneficial for a small business for all these reasons, a retirement plan should benefit the employees of a business as well. Fortunately, an MEP can benefit your staff in a number of ways:
Solution to The Retirement Coverage Gap
It’s estimated that half of American employees working full time lack access to a tax-deferred savings plan at work. One of the main reasons for this is because many employers, small businesses and startups in particular, do not have have the budget to afford setting up and maintaining a retirement plan. An MEP could be an effective solution to this retirement coverage gap since it greatly reduces the overall costs of a retirement plan for employers. Offering any kind of retirement plan is better for employees than no retirement plan at all.
Provide Better Retirement Outcomes
An MEP is not a savings account, and this is an important distinction to make. Employees understand that it’s important to save for retirement; however, the money they put away to live on in retirement is often not enough. An MEP gives employees the chance to invest their money and to grow it. The majority of employees don’t have the know-how when it comes to investing. The investment options provided by an MEP makes it much easier for employees to invest their money and to grow it with limited risk. Employers can also contribute funds to their employees’ retirement accounts as well, investing in their financial futures and incentivizing employees to save. As a result, participating in an MEP will likely result in better retirement outcomes for your employees.
How You Can Get Started Today
If participating in an MEP sounds like your best course of action, start by comparing different MEP plans. A few things to keep in mind: the more employers participating in an MEP plan, the better. It means that if one participating employer terminates its plan or violates its contribution requirements, it won’t have as big of an impact on the rest of the plan’s participants. You should also take a look at the investment options the sponsor has chosen as well as the amount of flexibility you’ll have before choosing to opt into an MEP plan.
Still unsure about participating in a MEP plan? Talk with an expert today!