Bob Collie, chief research strategist with Russell Investments, is squarely among the camp of retirement plan experts who favor a determined expansion of the multiple employer plans (MEP) system.
He is quick to point out that MEPs are distinct from multiemployer plans, which are generally run by an independent board on behalf of labor unions or other related employee groups. Instead, multiple employer plans are established under ERISA 413(c) and have historically have been used by companies that share a common industry or payroll provider—primarily professional associations and other related employer organizations.
Collie tells PLANSPONSOR that serious interest is building around MEPs, especially a new generation of “open” MEPs for unrelated companies. Currently, fiduciary hurdles prevent wider use of the open MEP plan design, but he feels some additional guidance from the Department of Labor (DOL) would turn cautious curiosity about open MEPs into unbridled enthusiasm.
“I think it’s safe to say that until now, MEPs have had the lowest profile of all the plan structures allowed under ERISA,” Collie explains. “One of the main reasons we are seeing the conversation build around MEPs largely has to do with the focus being paid to the coverage gap. Despite all the improvements the Pension Protection Act and other reforms have brought to the retirement space, we have clearly not done enough to simply improve access. It’s going to take a different kind of reform.”
Collie says, despite all the attention paid to money and financial issues in this country, workplace retirement plan access in the U.S. is still relatively dismal. He pins the top-level U.S. figure for retirement plan access—across all professions and industries—right around 50%.
“We have done a lot to improve the plans that already exist, but overall access is way too low,” he says. “Workers in certain sectors of the economy are still at a sharp disadvantage in terms of access to affordable investments and the fiduciary support that comes from investing in a qualified plan.”
NEXT: MEPs the only answer?
Collie says it’s hard to see how this 50% coverage gap could shut without an expansion of an open MEP system. So many U.S. workers currently lacking access to retirement plans are employed by small businesses, he says, which have nether the time nor the monetary resources to start up a traditional, single employer 401(k).
“There has been a lot of suggestion lately that MEPs are really going to be the best way to get out of this problem,” Collie says. “People are realizing MEPs have a lot of potential to make it easier for small employers to give their employees access to a plan at work—without have to take on a whole lot of administrative responsibility.”
Of course, small businesses will not be able to offer retirement plans to their employees without taking on some level of fiduciary responsibility.
“The fiduciary duty will be there, and there will be some costs for the employer, but the ease of use is attractive in open MEPs,” he says. “Ideally, the small business owner can fully outsource the plan administration, and they will simply have to monitor the third-party provider that is doing the heavy lifting of running the plan.”
Collie goes on to suggest that, were the DOL to add a clear safe harbor provision about how fiduciary liability is to be assigned within an open MEP, with a clear set of requirements for selecting and monitoring a provider, it would be a huge step towards improving overall plan access. He points to Australia as a “major success story in open MEPs.” As Collie explains, that country has a near-universal system of open MEPs. The open plans have become so popular that it's actually becoming rare to see a plan sponsored by a single employer.
“Why shouldn’t we want these small employers to go to a professionally managed, centralized plan?” Collie asks. “It’s a reasonable idea—you get a lot of scale potential here and great potential institutional pricing, even for the smallest employers. These aren’t new ideas I’m talking about, but they are getting more attention in practice.”
NEXT: Hurdles remain
Collie says the single biggest barrier that remains for wider use of MEPs is the stance that has been taken by the DOL, especially towards open MEPs. Specifically, he feels the DOL must update its thinking on how it treats a MEP when there is not a strong level of connection between the employers.
“Currently, there are questions about the so-called open multiple employer plans,” Collie explains. “These plans share a common type of worker or industry, so the DOL at present doesn’t really treat them as a single plan. The few open MEPs that exist are treated more as a collection of single plans that function together. This increases the administrative burden and really reduces the benefits of an MEP.”
Collie points to a recent report from the U.S. Senate Committee on Finance's Savings and Investment Bipartisan Tax Working Group, which highlighted the issue of a lack of government support for open MEPs.
“When that report came out from the tax working group in the Senate Finance Committee, they said they want to encourage open MEPs, but they aren’t sure it’s possible for these open plans to occur under the DOL’s regulations,” Collie says. “As far as I can tell, the reason the DOL is so entrenched in opposition to open MEPs is that they feel it is necessary for consumer protection.”
Collie says he was surprised to learn this when he started looking deeper into the issue in recent months.
“It really surprised me, because they seem to believe that, so long as there is some sort of connection between employers in an MEP, that somehow also means they are going to be better at managing the plan and protecting people investing money in the plan,” he explains. “But to me, this is pretty arbitrary. If consumer protection is a goal, we should be more concerned about the expertise of the people running the plan and their dedication to their employees—it’s not a question of what industry someone is in, whether they will be a good plan steward.”
Collie concludes that “it will be interesting to see how the ongoing fiduciary rule debate impacts all of this. Much of that debate is centered on conflicts of interest and consumer protection goals. Providers may gain more of a sense on what they’re going to be responsible for, both in open MEPs and serving retirement plans in general.”