There is lots of chatter, aka selling going on regarding MEPs. For the record–I am not an attorney (and never played one on television) but this fellow Sherpa had the opportunity to talk to a few ERISA Attorneys (you know those folks who know a little about the law) regarding Multiple Employer Plans. Mmmm….
FIVE REASON TO PRETEND YOU’RE NOT HOME WHEN THE MULTIPLE EMPLOYER 401(k) (MEP) SALESMAN COMES CALLING
5. Uh, Bernie is that you?
Post-Madoff it’s a little hard to believe (okay maybe it’s not so hard to believe) that folks are promoting accounts where essentially unregulated and unregistered entities (i.e., record keepers) have primary responsibility for the allocation of assets to many unrelated employers. If one adopting employer sends contributions that are not properly identified it may be difficult for even the most astute and well meaning, record keeper to adequately the source of the deposit. Needless to say, there is a much greater potential for misallocation.
4. Mary Schapiro on line 2.
Did you say Madoff, unregulated and allocation all in the same paragraph? The SEC has opined on several occasions that MEPs are subject to both the Securities Act of 1933 (only single employer plans are exempt) and the Investment Company Act yet we are unaware of any that have registered.
3. The last guy who called me top heavy would have been 35 yesterday.
Unfortunately, because MEPs are treated as single employer plans for many plan qualification requirements, if any one employer fails to meet any requirements that are tested or required on an employer-by-employer basis the entire MEP fails to meet the qualification requirements. For example, Treasury regulations specifically provide as follows: “… if twelve employers contribute to a multiple employer plan and the accrued benefits for the key employees of one employer exceed 60 percent of the accrued benefits of all employees for such employer, the plan is top-heavy with respect to that employer. A failure by the multiple employer plan to satisfy section 416 with respect to the employees of such employer means that all employers are maintaining a plan that is not a qualified plan.” Nuff said?
2. Sure we have something in common but is it really enough.
There is a lot of chatter about whether a MEP sponsored by multiple employers who act as independent co-sponsors, so-called open MEPs, require that each adopting employer have a common nexus or commonality. While there does appear to be a statutory basis for open MEPs, the Department of Labor (“DOL”) has not yet opined on the matter and given the expectation that the DOL will speak to this issue in the near future.
1. I thought that you said I couldn’t be sued.
These may not be the most famous “last words” (Custer’s last stand?) but they are probably right up there. Despite the clear ability to delegate fiduciary responsibilities in a MEP as in a single employer plan, many practitioners are very skeptical of the claims made by MEPs that they allow an adopting sponsor to avoid all fiduciary responsibility. Instead it does seem likely that adopting employers retain some residual fiduciary responsibility to monitor the MEP. Thus, until the DOL opines on the subject, it appears that the best practice is for adopting employers to assume that they have some fiduciary responsibility to at the very least monitor the plan holding their employees nest eggs.
© 2012, The Advisor Lab. The opinion in this post is that of the author and may not reflect the opinions of The Advisor Lab or any of its affiliated companies. This post is not to be construed as investment advice.
