Open MEPs – huh?

OK, so my target audience is my clients and similar (generally small) employers, and advisors.  This post has limited use for that target group, but just for the record…the hot topic, or what passes for a hot topic in the mundane world of retirement plans, is “Open MEPs” – I’ll explain ever-so-briefly in a sec, but if you haven’t heard of them yet, you’re unlikely to hear of them because they just took a bullet from the Department of Labor.

A Multiple Employer Plan (MEP) is a plan that is adopted by multiple employers.  This makes a lot of sense if there is a group of somewhat related employers that would like to save money or otherwise be efficient and have a single plan covering all of their employees, and pension laws and regulations support the concept.  In the last few years, variants on this theme, “Open” MEPs, have been created and marketed for unrelated employers to adopt and use.  The purported advantages are 1) better investment choices, and 2) lower costs.  I think the first item is not significant, since in today’s market, it’s not that hard to find a platform offering broad investment choices.  The second item could be significant for large employers (with over 100 participants), because those plans must be audited ($$$!), and if the Open MEP concept is valid, you can spread the cost for a single audit over all adopting employers, instead of each independent plan paying for its own audit.  But there’s something that smells a little funny about a bunch of unrelated employers joining up in a single “plan”, and the DOL made some rumblings about not liking the idea over the last year or so.  Just recently, an Open MEP sponsor asked for a ruling – and got it, with a devastating answer: an Open MEP is really a bunch of individual plans, not a single plan.  Most of the cost advantages poof away, since each sponsor with over 100 participants would have to get its own audit.  That’s about all the typical reader of this blog needs to know – they weren’t that attractive to small plan sponsors in the first place, and the DOL says they’re not what they purport to be (a single plan), so there’s no advantage to using one.  Stay away!