Current Thinking

MEPs Might Just Be the Answer

Most CEOs and other executives just want to run their businesses. Whether they help run a factory, a consulting firm, or a school, they’d prefer to focus on what they are best at: leading, serving, and building their business. Most are not interested in becoming experts at running their retirement plans. And this may be particularly true with educators. As it is, there are so many challenges in primary, secondary, and higher education. More than ever, faculty, staff, and administrators must balance a host of concerns. While providing quality education, they must consider reining in costs. While responding to diverse individual needs, they must maintain academic rigor. And while attracting the best talent, they must also strive to retain employees with an attractive array of benefits.

403(b) plans have undergone tremendous change

For the nonprofit sector, a crucial element in a robust benefits package is a 403(b) retirement plan. Since the late 2000’s, 403(b) plan administrators have faced numerous challenges. These plans, which had been subject to much less restrictive rules, have generally become much more like 401(k) plans. Now, 403(b) plans that are subject to certain rules under the Employee Retirement Income Security Act of 1974 (ERISA) are bound by more regulatory requirements. Without recounting the details, many 403(b) plans now must comply with detailed nondiscrimination (and other) rules. For many employers and service providers, the bottom line is that there are many ways that compliance errors can happen, from excluding eligible employees from the plan to mishandling hardship distributions and loans.

Fiduciary liability is a critical concern for 403(b) administrators

ERISA requires, among other things, that plan fiduciaries act in the best interests of plan participants and beneficiaries. This fiduciary standard is the highest standard of duty in the law, and it means several things. For one, it means that fiduciaries must subordinate their own interests—and elevate plan participants’ interests above their own. They must also act as “prudent experts” when performing their duties. And fiduciaries can be held personally liable for breaching their duties to the plan and to participants and beneficiaries.

We will go into more detail on fiduciary liability in upcoming articles. But for now, let’s keep it relatively simple. Employers (or “plan administrators”) are always considered fiduciaries of their plans. They are normally responsible for the day-to-day administration of plans. This involves many duties, including:

  • selecting appropriate plan investments,
  • notifying employees (and enrolling them) when they are eligible to join the plan,
  • making sure that elective deferrals are timely deposited,
  • passing nondiscrimination tests (e.g., for employer contributions),
  • providing annual information returns to participants and to the IRS,
  • conducting an annual plan audit (for those with more than 100 participants with account balances at the start of the year), and
  • processing distributions and loan requests.

 The IRS and DOL want employers’ plans to succeed

But don’t think that the retirement plan landscape is necessarily bleak. The Internal Revenue Service (IRS) and Department of Labor (DOL) want employers to succeed with their retirement plans. These entities understand the great value that these plans can provide to American workers. These plans also, however, provide tax benefits to employers. So they must comply with multiple rules to keep the plan’s tax-exempt status. When plan administrators make mistakes and discover them on their own, they are allowed to correct them through the IRS’s detailed correction program. This typically involves putting participants in the position they would have been in had the error(s) not occurred—and carefully documenting the correction process.

Multiple employer plans (MEPs) can address many common concerns

One way that federal law enables employers to avoid missteps is through the use of multiple employer plans, or MEPs. Simply put, MEPs allow unrelated employers to combine their plans under a single MEP “sponsor.” Typically, the sponsor will make this plan available to multiple employers engaged in a similar business, such as private education. MEPs provide substantial benefits:

  • Access to expert sponsors and service providers who have substantial experience with MEPs
  • Plan fiduciaries who will assume many day-to-day responsibilities, including:
    • Providing participant notices,
    • Creating information returns (e.g., 5500 and 1099-R reporting),
    • Arranging for annual plan audits,
    • Monitoring timely plan contributions, and
    • Providing education for plan participants.
  • Economies of scale, sharing expenses with other employers
  • Insulation from many fiduciary liabilities
  • Expertly chosen investment options for your participants

Next steps

If you’re like most employers, you want to run your enterprise without the distraction of becoming an expert on your retirement plan. The colleagues who help administer your existing plan could likely use some help. And there is help. Look to upcoming articles to provide more detail on how MEPs can ease your administrative burdens and improve compliance. Meanwhile, get in touch with a Pentegra representative to learn more about how we can help.