By Cyril Tuohy
Earlier this month, Transamerica Retirement Solutions announced what it called a “retirement exchange,” aimed at small employers. The question for the retirement plan industry is whether the exchange is a twist on the Multiple Employer Plan (MEP), which has been around for years, or whether it is an entirely new kind of retirement plan.
For the moment let’s call it MEP 2.0, with apologies to Transamerica, which insists the exchange isn’t an MEP at all. More on that later.
Gary Sutherland, a co-owner of NAPLIA, a professional liability insurance agency in Framingham, Mass., doesn’t particularly care what it is called. He’s happy he has choices. “Now it looks like I’ll have some other, hybrid options with the exchange,” Sutherland said in an interview with InsuranceNewsNet.
Because his company wasn’t large enough to make the switch to a defined-benefit plan economically feasible, Sutherland switched to an MEP in 2010 from a so-called safe harbor 401(k) plan, which was managed by a payroll company.
With MEP adoption, Sutherland saw his retirement plan fees for his 25 employees plummet by 50 percent, he said. With the latest offering from Transamerica, Sutherland said he would look into the advantages of switching once more.
For small business owners, this new – and welcome – twist to the MEP will give them more choices and stronger savings incentives like automatic deferral increases and Roth tax advantages. This fills a need among business owners who are looking for easier, cheaper ways for participants to contribute.
“There's been a lot of discussion about open MEPs,” Sutherland said. “People are saying they are dead, but I believe they are changing.”
Retirement plan expert Marsha Wagner, managing director of Wagner Law Group in Boston, called the exchange “a form of multiple employer plan,” distinguished by the bench strength of the professional services providing investment options and fiduciary duties.
“As much as possible, the fiduciary obligation of employers is removed and put on the entities running this exchange,” Wagner said. “A plan sponsor can never get rid of all fiduciary responsibility, but we've done it with this as much as possible.”
A small employer like NAPLIA, for example, will get professional 3(16) administrative and legal services as well as good bonding rates with highly rated insurers, and offering high-quality plans is possible due to economies of scale, she said.
“Smaller employers need help,” Wagner said in an interview with InsuranceNewsNet. “This seems to me a one-stop shop and reasonable level of fiduciary compliance.”
Versions of multiple employer plans have been around for years as a way to serve small to midsize plan sponsors looking for better, cheaper ways to simplify 401(k) plan oversight by transferring the duties, responsibilities and liabilities of plan sponsorship from the small employer.
Established under ERISA 413(c), MEPs caught on with employer associations and employee leasing firms. As interest in outsourcing many of the costly fiduciary responsibilities has grown, “open” MEPs have sprung up for plans run by unrelated companies, according to Terrance Power, president of American Pension Services Inc.
Jim Kais, senior vice president and national practice leader for special markets at Transamerica Retirement Solutions calls the model a “pooled investment vehicle.”
“The retirement exchange is not an MEP, it’s a pooled investment vehicle that contains a collection of single-employer retirement plans,” Kais said, in an interview with InsuranceNewsNet. In the exchange, the document that governs the plan is in the name of each individual employer, not the overarching plan sponsor as is the case with MEPs, he said.
A rogue employer with a “defective” plan is segregated from the rest of the plans, he said. A toxic plan infecting others “does not exist in the exchange.”
“Employers can be disgorged. Liability can be segregated. There’s a wall between employers,” he said.
In the MEP, an employee working for one employer is considered an employee of all employers. Not so in the exchange.
Designed for companies with two employees or more with assets of up to $10 million, participants can roll over assets from one plan to another, but the new employer doesn’t have to recognize that service with another member of the exchange, as they would in a multiple employer plan.
So is the exchange the latest iteration in the development of the MEP, or an entirely new retirement plan model? No matter, so long as small employers have an efficient way of putting money aside for retirement.
“We launched May 1, and we've been interviewing and getting an idea in the market,” Kais also said. “Feedback has been extremely strong.”
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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