Multiple employer plans (MEPs) are one of the retirement world’s trending topics.
Out of the shadows; into the spotlight
Not to be confused with the troubled multiemployer sector, MEPs have been around for a long time, but have existed in the shadows of the retirement system, away from the spotlight. Recently, some influential voices—such as the AARP and the Prudential—have thrown their weight behind the MEP idea as a potential way of addressing the retirement coverage gap.
And these voices appear to have been heard. MEPs were the first item identified in a recent report by the Savings and Investment Bipartisan Tax Working Group of the U.S. Senate Committee in Finance on increasing access to retirement plans.
Fiduciary obligations need to be made clear
In a poll of attendees at Russell’s recent institutional summit, a majority of respondents came out in favor of this idea. But that support came with strings attached: the most popular response was “I like this idea, but only if we get the right fiduciary reassurance.” This underlines the extent to which employers are now on the defensive as regards fiduciary obligations. Significantly wider acceptance of MEPs is unlikely unless employers can be certain that they are able to restrict their fiduciary responsibility to the selection and monitoring of the MEP provider, and no more than that.
The Senate Working Group report highlights some other changes that would likely be required if this sector is to grow. These include making it possible to ring-fence a particular employer in the event of a breach of ERISA (e.g. if nondiscrimination requirements are not met) and resolving the status of open MEPs (i.e. those in which there is no connection between the participating employers.)
If MEPs do emerge as a bigger force in the retirement system, the impact could be significant. The possibility gives rise to questions such as: How would a stronger MEP sector interact with and work alongside existing retirement arrangements? Is there an overlap with state-sponsored initiatives (some of which share many of the features of an open MEP) such as Illinois’ Secure Choice program, Washington’s small business retirement marketplace and the growing number of other such initiatives?
Let’s be deliberate in setting retirement policy
The current structure of the retirement system in the U.S. did not come about by conscious design. Rather we arrived here largely by happenstance, with policy initiatives in several areas and wider societal trends interacting to create the system as we know it today. Today, pressure for change is building, and the growing interest in MEPs is just one example of that. Now is a good time to work out where we want to go.