The promise of cost savings and reduced administrative burdens from bipartisan legislation to help more small businesses offer retirement savings plans may prove more appealing to some employers than others, according to a new white paper from Massachusetts Mutual Life Insurance Company (MassMutual).
The House of Representatives earlier this year passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act with the goal of improving access to retirement plans for more employers and their employees. The legislation includes provisions that expand access to Open Multiple Employer Plans (MEPs) with the goal of making it easier for small employers to band together for the purpose of providing a robust retirement plan to their employees.
MassMutual’s white paper, “Open Multiple Employer Plans: What Open MEPs May Mean for Your Business,” explains the potential benefits of Open MEPs and reports that they may prove elusive depending upon the specific needs and preferences of the participating employer and the plan options selected. The paper provides insights for employers and financial advisors about making the most of Open MEPs.
“The ability to join an Open MEP would likely be an outstanding new opportunity for many small businesses and their employees to achieve retirement security,” said Bob Carroll, Head of Workplace Distribution for MassMutual. “However, employers and their financial professionals will need to carefully consider what they want to achieve and how when participating in an Open MEP. MassMutual’s whitepaper was created with the goal of helping more employers and their advisors think through these issues and make the best decision for their objectives.”
MassMutual has been managing MEPs for clients in the association, franchise, and PEO markets since 1989, with more than 4,000 adopting employers and $4 billion in assets under management. That experience prompted the retirement plan recordkeeper to publish its white paper to raise issues employers and advisors should consider when evaluating an Open MEP:
Selecting the plan design. Plan design decisions, including rules about eligibility and vesting, inclusion of auto-features and matching contributions and others, can play a significant role in how effective a plan may be in enrolling participants, encouraging savings, and preparing workers to retire on their own terms. Because Open MEPs are designed to streamline the process of offering and maintaining a retirement plan, participating employers may have limited choices when it comes to plan design. Employers are urged to carefully consider the plan provisions and whether they are a good fit for their specific plan goals and workforce demographics.
Deciding on hands-on vs. hands-off plan administration. The time and costs of administering a retirement plan can sometimes discourage small businesses from offering one. By joining with other companies in an Open MEP, employers may have the opportunity to both ease the burden of plan administration and reduce costs by taking advantage of economies of scale. However, partnering with an experienced third-party administrator (TPA) can be crucial to achieving these benefits and in helping participating employers handle administrative responsibilities outside the Open MEP umbrella, such as IRS nondiscrimination testing and contribution limits, allocating employer contributions and forfeitures, calculating participant vesting percentages, and preparing loan paperwork. In addition, it’s important to understand what support a TPA provides in helping to assess the needs of the business to minimize plan expenses and maximize successful retirement outcomes.
Choosing limited vs. customized investment menu. The investment options available within a MEP are obviously a top consideration for an employer considering participation in the plan. The ability to combine assets under one universal umbrella may give MEPs the ability to offer access to lower-cost funds typically available only to larger companies with greater assets and more purchasing power. However, for ease of administration, some Open MEPs might require participating employers to choose from more limited options.
Open MEPs may require participating employers to use pre-selected investment menus, limiting employers’ ability to tailor an investment lineup to meet all their preferences. Here again, advisors and small employers would need to carefully consider how an Open MEP limits investment choices and what level of customization may be available.
Determining fiduciary oversight. One of the most important benefits of MEPs is that they are typically structured to provide employers a significant amount of support. This includes the ability to reduce their fiduciary responsibilities, particularly as it relates to handing over control of selecting and monitoring investment options for their plan to a so-called 3(38) investment manager. This is in contrast to 3(21) fiduciary services, where an advisor recommends investment options while the employer retains discretion, authority and fiduciary liability for fund selection.
“Passage of the SECURE Act would be one of the most important legislative achievements for retirement savings in decades,” Carroll said. “Open MEPs could expand access to retirement plans significantly but it ultimately pays to understand how to make the most of the available opportunities, especially when it comes to joining an Open MEP.”
MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyowners. MassMutual offers a wide range of financial products and services, including life insurance, disability income insurance, long term care insurance, annuities, retirement plans and other employee benefits. For more information, visit www.massmutual.com.