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Exclusive Interview (Part IV): Phil Chiricotti Sees MEPs as THE Fiduciary Solution for Small Plans

August 19
00:04 2014

Here’s the third installment of our four-part interview. If you’ve missed any, click the links below:

Part I: Phil Chiricotti to Retirement Industry: Outsource Fiduciary and combine with HSA or Die!

Part II: Phil Chiricotti says Lobbying to Replace 401k is “Lunacy”
Part III: Phil Chiricotti Offers Surprising Comments on the Fiduciary Standard
Part IV: Phil Chiricotti Sees MEPs as THE Fiduciary Solution for Small Plans

Part IV begins here:

FN: Let’s talk about proposed legislation that might actually help 401k plan sponsors and participants, especially those from smaller companies.  The DOL currently has a very restricted view, much more restrictive than the IRS, regarding the acceptability of Multiple Employer Plans (MEPs) in the 401k realm.  Essentially, the DOL is limiting their use to business associations. There has been some bipartisan effort to push forward the idea to make it easier for groups of unrelated businesses to join MEPs. What is the status of MEPs and their primary advantages?
Chiricotti: As outlined in their 2012 Advisory Opinion, the DOL effectively treats adopting employers in a multiple employer plan where there is no “commonality” or “nexus” among the adopters as individual plan sponsors for reporting and fiduciary purposes. This means that adopters are required to file an individual Form 5500, have an annual plan audit performed if the size of the group warrants it, and maintain an individual ERISA bond. The employer also retains a level of fiduciary responsibility.

Some of the Open MEP providers rebranded around aggregate solutions after the DOL opinion, but as noted in the Fred Reish, Drinker Biddle, release on Open MEPs & DOL Guidance:  Where Do We Go From Here, the impact on adopting employers was relatively small. The credible Open MEP providers made the changes to comply with the DOL’s guidance while continuing to offer economies of scale and fiduciary protection for adopting employers. Fred has also noted that MEPs have the potential become a coverage solution for the small plan market, but further notes the need for independent trustees or custodians. Marcia Wagner, The Wagner Law Group, played a role in developing the Transamerica program and she is also on record stating that aggregate solutions are coming to the fore as a solution for the lack of broad coverage in the small employer market.

Multiple Employer Plans have been around in one manner or another for over five decades. Their use as a suitable vehicle to help broaden retirement plan coverage as well as to outsource complex compliance and administrative issues is well established. The fact that the DOL ERISA Advisory Council is currently soliciting testimony on “Outsourcing Employee Benefit Plans” is viewed as a positive development.

While there is currently no uniform DOL framework for evaluating outsourced fiduciary services, the council intends to draft recommendations for the Secretary Of Labor to consider.  This could result in much needed DOL guidelines. Additionally, it would be helpful if the conflicting IRS and DOL viewpoints fell into lockstep. As proposed by pending legislation, the unnecessary “nexus” requirement being applied to multiple employer plans in much the same manner as MEWAs should also be eliminated.

Terry Power from The Platinum 401k, one of the CFDD ’14 panelists on the MEP’s, MEAP’s & Today’s Legislative Environment breakout session, will be testifying before the council. His testimony will be public record as of 8/19/14. Transamerica, also on the CFDD ’14 agenda and a leader in this area, will not be testifying, but they will be submitting written testimony. Other CFDD ’14 heavyweights are also rumored to be testifying and this should help us communicate a clear vision of how the council feels about fiduciary outsourcing at the CFDD‘s October 15-17, 2014 Advisor Conference.

FN: When we asked Phyllis Borzi to give us her thoughts about the MEP, she expressed concern about MEP sponsors hiring themselves to manage the plan assets. How would you envision a MEP might protect itself from this apparent conflict-of-interest?
Chiricotti: Given that there are some programs that raise eyebrows in this area, Assistant Secretary Borzi raises a good point and one that the DOL should provide firm guidance on. As with any service provider to any plan, it is important that conflicts-of-interest be avoided at all costs. Even the appearance of one can be a problem. As with single employer plans, problems can develop if parties do not have the best interests of the plan participants as their number one goal. This is one of the reasons why independent committees should be part of MEP programs. Single entities can provide multiple services, but the compensation arrangement and the governance structure need to pass muster. In any event, much needed DOL Regulations that provide service provider guidelines for MEP’s – as well as Single Employer Plans – would be welcomed by the industry.

As noted by others, MEPs will need DOL blessing before they are widely embraced as an expanded coverage solution. Given the need for coverage and the bipartisan legislative support in this area, that may happen in the next 1-2 years. Advisors could provide services at the plan, adopter, or participant level. As with any ERISA program, compensation should align with the service model and not be excessive. Advisors who don’t assume a 3(38) or 3(21) fiduciary position are unlikely to have an investment role. Those that do provide the fiduciary services may still wish to avoid small MEPs.

FN: Do you miss the 401k program competitive analysis business?
Chiricotti: Real competitive analysis is like investigative journalism and similar to childbirth. It is a time consuming, painful and laborious process. Unlike those who check the box, real analysis requires extensive networking with highly skilled advisors using the programs. There is no short cut and after giving birth a few dozen times, the bounce in your stride diminishes.

Based on trends and growth potential, we are, however, vetting and developing lists of vendors active in the HSA, outsourced 3(16) fiduciary services, MEPs, and aggregated solutions areas.  Given that HSAs are expected to contain $40 billion in a few more years, we are particularly interested in vendors that allow advisors to play an investment role. These lists don’t exist today and they should be quite valuable to advisors. The vetting is particularly important because these programs vary widely.

The industry is changing fast and while needs and outcomes are being redefined, the industry is behind the evolutionary curve. For example, one of the top independent open architecture recordkeepers in the CFDD’s  network supports model portfolios, offers a HSA with an investment role for advisors, and cost effective/meaningful outsourced 3(16) fiduciary services.  To address coverage needs, the national firm also offers a stripped down 401k program for small employers. To my point, few advisors and DCIO wholesalers are aware of the vendor’s capabilities, the expanded sales opportunities or the potential for enhanced margins. The CFDD’s analysis will change that. It will also be available to advisors attending CFDD ’14 without cost.

FN: Phil, what can we say? You’ve given the readers of so much to chew – all great stuff. Your command of these critical issues is overwhelming. We respect and admire your blunt style and look forward to seeing more from you in the future.

Christopher Carosa, author of 401(k) Fiduciary Solutions, will be speaking at CFDD‘s October 15-17, 2014 Advisor Conference on the subject of “Using Proven Psychological Techniques to Motivate Plan Sponsors & Participants to Implement Your Recommendations.” The session will feature an interactive presentation featuring tools mentioned in his new book Hey! What’s My Number? – The One Thing Every Retirement Investor Wants and Needs to Know!

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Butch Goette
    Butch Goette August 20, 10:36


    Great interview!! Am learning a lot about the DC world.

    You and I were to try and connect but have yet too. I believe we should. Additionally, I’d REALLY like to chat with Phil. Can you direct me?

  2. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author August 20, 11:16

    Butch: Thanks! Glad you liked it and extreme pleased to see you found it informative! Feel free to email me directly when you get a chance.

  3. Stephanie Banister
    Stephanie Banister November 07, 15:32

    Open MEP’s are a stellar solution for the small employer. The key to a value-added MEP: expert fiduciary service, timely record keeping execution, knowledgeable TPA staff with the IT resources to handle a MEP, extremely ethical 3(38) managers, fair fees, and an efficient, responsive 3(16).

  4. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author November 08, 15:45

    Stephanie: Thanks for the great comment! I had to remove references to specific firms as it might be misinterpreted as unpaid advertising.

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