What is a Multiple Employer Plan?
Expertise provided by Kim Schenk, Senior Retirement Plan Administrator
Retirement plans can be a difficult benefit for small businesses to implement and manage. As a result, many business owners have turned to Multiple Employer Plans (MEP). An MEP is an employer-sponsored retirement plan allowing multiple businesses to band together and offer a single retirement plan to their employees. This type of plan allows employers to pool resources, reduce costs, and provide a more robust retirement benefit than they could on their own.
MEPs are becoming increasingly popular among small business owners as they provide greater flexibility in plan design and allow easier compliance with government regulations. By joining forces with other businesses, employers also enjoy economies of scale when it comes to administrative costs.
In a 2022 survey conducted by the Society for Human Resource Management, retirement packages ranked second on a list of the benefits considered most important by employees, behind health insurance and tied with leave. Among respondents, 82% considered retirement and savings packages important — a significant increase over the 55% of respondents in 2021’s survey.
Below, we’ll provide an introduction to what business owners need to know about MEPs.
Multiple Employer Plans Explained
A multiple employer plan is an IRS-approved retirement plan for which more than one business can partner with a single plan sponsor. Under the Employee Retirement Income Security Act (ERISA), plan sponsors must operate as fiduciaries (i.e., in their client’s best interests) when administering MEPs.
The result of MEPs' resource pooling is that otherwise unrelated small businesses can achieve better per-participant costs while reducing management and compliance obligations by placing the plan under the supervision of experienced retirement professionals.
Multiple employer plans can be traced back to the Labor-Management Relations Act of 1947 — also known as the Taft-Hartley Act. Originally designed for unions, part of this law enabled employees to collectively pool their resources for retirement plans, which required a board of trustees balancing management and worker representation to administer the plan.
MEPs were initially designed to support union workers within the same industry. Today, MEPs have evolved and are commonly used by multiple employers to leverage pooled resources, minimize administrative burdens, and provide benefits they might otherwise be unable to.
How Do Multiple Employer Plans Work?
Employers familiar with umbrella health insurance policies will have some familiarity with how MEPs work. They operate similarly, with a single plan administered by a single company under its own federal employee identification number (FEIN). Multiple employers are eligible to opt into an MEP — resulting in plans that range from a few to hundreds of clients.
Unlike starting a single-employer plan, MEPs are considered a “turnkey” retirement solution that involves partnership-based outsourcing. Working with an external plan manager eliminates the challenge of providing:
- Record keeping
The Two Types of MEPs
MEPs are grouped into one of two categories depending on their participation requirements – open or closed.
Closed MEPs should perhaps be called “restricted MEPs” because the name can be somewhat misleading. They don’t prohibit new employer members from joining; instead, every employer that joins must share some commonality. This mutual nexus can be based on:
- Working within the same industry (i.e., a trade association)
- An appointed board of directors or co-sponsorship agreement
- Chamber of commerce membership
- Receiving the same service from a third-party entity, such as a PEO (professional employer organization)
For example, like most PEO-sponsored MEPs, BBSI’s closed MEP consists of businesses that partner with BBSI for payroll and other services. Because employer membership is more restricted, it facilitates the sponsor’s due diligence regarding the contributed funds’ source and plan protection.
Unlike closed plans, an open MEP doesn’t require participating employers to share any commonality or connection aside from plan participation. As a result, this type of plan is increasingly being adopted by groups of gig workers and becoming more prevalent.
Open MEPs are still often used by trade associations and unions and negotiated via collective bargaining.
The Benefits of an MEP for Small and Medium-Sized Businesses
#1. Recruitment and Retention
Existing employees and potential hires are concerned about long-term savings obligations for retirement. That means the right plan can be instrumental in attracting top talent. Along with the SHRM survey mentioned above, the annual State of the Workplace Financial Benefits Study from Morgan Stanley at Work found retirement benefits to be a top benefits consideration factoring into where employees want to work:
- 93% of employees consider retirement benefits a priority in choosing which jobs to apply for and accept
- 76% of HR leaders consider financial planning assistance for retirement, including access to a financial professional, a priority in retaining employees
However, small business owners often find it prohibitively challenging or expensive to offer retirement benefits. By joining an MEP, those challenges are eliminated, and their recruitment and retention capabilities immediately improve.
#2. Affordable Alternative to Large-Scale Plans
Large-scale retirement plans benefit from pooling more resources. MEPs enable small business owners to receive benefits they’d otherwise not have access to if they started a single-employer plan, such as:
- Access to larger retirement funds
- Better rates and flexibility with options (e.g., a wider array of asset classes)
- Lower shared administrative costs
#3. Reduce Administrative and Compliance Burdens
Managing a single-employer plan places a significant administrative, fiduciary, and compliance burden on small business owners. Many owners don’t have the time to add another task to the extensive to-do lists involved with managing their business. And despite the overly complicated rules and regulations involved, the IRS and DOL aren't forgiving with penalties assessed for incorrectly filing paperwork or making other mistakes when administering single-employer plans.
Moreover, many states now require employers to provide retirement plans, offering a state-run option as an alternative if they’re unable. However, state-run retirement plans don’t benefit from the same annual limits and tax breaks that MEPs offer.
States that currently or will enforce some requirement regarding employer-offered plans (or state-run alternatives) include:
- New Jersey
- New York
Outsourcing plan management to a third-party administrator ensures employees receive access to better plans, and small business owners don’t have to contend with bandwidth and noncompliance challenges themselves.
#4. No Audits
On top of the normal administrative, fiduciary, and compliance burdens involved with managing a retirement plan, there are yearly audit concerns as well.
Businesses operating single-employer plans are subject to these annual audits if more than 100 individual employees are participating. Likewise, businesses that join an open MEP are subject to audits if more than 100 of their employees participate and the plan’s total individual participants number is 1000 or more.
However, with a closed MEP, the sponsors assume all audit responsibilities for participating businesses, regardless of employee count.
#5. Customer Support From Experts
There are many complicated rules and regulations that come with retirement programs. Issues and questions will certainly arise for the employer and employees. With an MEP, businesses don't have to go it alone.
Individual employees participating in the MEP will have a dedicated plan sponsor with access to retirement experts to answer any questions or concerns. Remember, plan sponsors are legally required to act in the best interest of participants. That means there is a pool of expertise, from the plan fiduciary to the asset holder, to help the employer and employees navigate plan options, mitigate liabilities, and develop comprehensive approaches to retirement savings.
How Does BBSI’s Multiple Employer Plan Work?
BBSI offers clients the opportunity to join our closed MEP, which is managed in partnership with Morgan Stanley (co-fiduciary), Milliman (record keeper), and Charles Schwab (asset holder). The nexus or shared connection required for membership is met by leveraging our payroll processing services. A qualifying employee at a participating business is eligible to defer some of their pay to contribute toward their retirement via this plan and receive financial advising services from Morgan Stanley.
BBSI also handles all payroll calculations (e.g., employee contributions, employer matching) and deductions, which are seamlessly uploaded into the Milliman system. This ensures small business owners can offer a competitive retirement plan within their employee benefits package with minimal administrative, fiduciary, or compliance burden.
Contact us today to get started with one of our experienced team members!
Disclaimer: The contents of this white paper/blog have been prepared for educational and information purposes only. The content does not provide legal advice or legal opinions on any specific matters. Transmission of this information is not intended to create, and receipt does not constitute, a lawyer-client relationship between BBSI, the author(s), or the publishers and you. You should not act or refrain from acting on any legal matter based on the content without seeking professional counsel.