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To MEP Or Not To MEP? That is the SECURE 401k Question

To MEP Or Not To MEP? That is the SECURE 401k Question
December 17
00:03 2019

Is it real this time, or will Lucy pull the football away from Charlie Brown once again?

Late word has it that the SECURE Act has found itself attached to the year-end spending bill. This bipartisan retirement package has been rumored to pass its final hurdle for some time. This time it may be real.

“We can confirm that the SECURE Act has been added to the year-end funding bill, which should reach the President’s desk for signature by the end of the week,” announced Brian Graff, Chief Executive Officer at American Retirement Association in Arlington, Virginia on his LinkedIn account.

This landmark legislation has the potential to become as significant as the 2006 Pension Protection Act. “The #SecureAct will lead to Pooled Employer Plans (‘closed MEP’s’) as early as 2022!” said Terrance Power, President at The Platinum 401k, Inc. in Tampa/St. Petersburg, Florida on his Twitter account.

The passage of the Secure Act could usher in a new era of 401k plans. The MEP can open up retirement saving options for many employees of small companies. They may even change the paradigm for companies that already have 401k plans. The question many may soon be asking will be whether or not plan sponsors should go it alone or join a pool through a MEP.

The discussion is not yet settled, but there are strong feelings.

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“When compared to a standalone 401k plan, MEP plans typically have lower fees, better investment options and more qualified advisors managing them,” says Kyle P. Webber, Managing Partner at Quartz Partners Investment Management in Troy, New York. “This is due to nuances of a multiple employer plan along with the larger plan sizes which requires more specialization and formal RFP process that come with larger plans.”

There is certainly plenty of upside when it comes to 401k MEPs. Daniel Milan, managing partner of Cornerstone Financial Services in Southfield, Michigan, says, “MEPs would open up 401k options to a significant number of participants and small business plan sponsors that may not have a 401k available to them currently due to issues like: 1) plan costs; 2) administrative issues; 3) regulatory filing concerns, etc. We believe that this will be a highly beneficial transition for retirement participants overall and hopefully an increase in participant retirement readiness and education.”

Of course, since a 401k MEP consolidates the retirement plans of many different companies, they may place pressure on certain critical functions. “One factor that will come into play is how well the recordkeeper can adapt to what advisors need,” says Greg Patterson, CEO of The Advisory Group in San Francisco, California.

Still, as individual 401k plans have evolved, the benefits offered by the MEP aren’t as compelling in a broad sense. “The development of MEPs is certainly interesting, but given the overall advancements in the 401k space, I don’t really see the advantage of them,” says Doug Kinsey, Partner and Chief Investment Officer at Artifex Financial Group in Columbus, Ohio. Unless you are a very small employer, you’re better off to maintain your own plan.”

It appears a consensus exists on some matters pertaining to 401k MEPs, including their potential shortcomings. “The positive is offering a lower cost platform through economies of scale that could be easier for a plan sponsor to administer,” says Jimmy Masters, Vice President – Investments at The Alcaraz Fisher Justis Wealth Management Group of Wells Fargo Advisors in Virginia, Virginia. “The negative is that hardly any two plans are exactly the same, so I fail to see how a one-size fits all approach will work for so many plans that may have structural differences in plan design. Might look good on paper but not be so easy to actually implement.”

 

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For some, there remains a concern that even economies of scale won’t be as easily achieved as expected, particularly for bigger plans. “MEPs will be great for employees of smaller companies, because they generally have higher plan expenses that could be shared across multiple employers,” says Matt Ahrens, Chief Investment Officer at Integrity Advisory, LLC in Overland Park, Kansas. “The cost of a larger MEP 401k is still higher than a similarly sized traditional 401k plan, because not every expense can be shared. Employees of larger companies would likely still be better off in a single company’s plan.”

It’s important to remember that the 401k MEP is just a vehicle. Whether they truly meet the objective of employees saving more for retirement and doing so effectively and efficiently comes down to execution. “The MEP option does not answer the two greatest issues facing participants and plan trustees,” says Dr. Guy Baker, founder of Wealth Teams Alliance in Irvine, California, Texas. “The first issue is education and the second issue is allocation of assets. MEPs are unlikely to be able to afford to do either effectively for the plan. As a result, plan trustees will need a way to provide these services unless the DOL changes the rules. For an advisor who wants access to this market, they need to be able to effectively provide both.”

In the end, they may be a big step to addressing broader retirement savings concerns, but MEPs are only the first step. “401k MEPs could be better, or they could compound the problem if the root problems are not addressed,” says David S. Thomas Jr. CEO and Senior Investment Management Consultant at Equitas Capital Advisors, LLC in New Orleans, Louisiana.

To MEP or not to MEP? That may soon be the question you’ll be hearing a lot more once the SECURE Act passes.

Christopher Carosa is a keynote speaker, journalist, and the author of  401(k) Fiduciary SolutionsHey! What’s My Number? How to Improve the Odds You Will Retire in Comfort, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on Twitter, Facebook, and LinkedIn.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

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