A good 401(k) plan can be an attractive selling point for businesses looking to hire the best and brightest. However, smaller businesses may have a hard time establishing a 401(k) plan capable of competing for the attention of potential employees.
Few small businesses have the resources to carry out 401(k) administrative tasks, and the smaller pool of assets doesn't warrant the best deal from financial institutions. Self-employed workers, as a pool of one, have an even more difficult time.
Congress proposed a solution to this problem in 2016. The Retirement Enhancement and Savings Act of 2016 (RESA) would have made it easier to establish multiple employment plans (MEPs) – a method of allowing smaller businesses and independent contractors to pool their collective 401(k) plans into a single entity in order to leverage better deals and limit their resource burdens.
Note that a multiple employment plan is not the same as a multi-employer plan. Multi-employer plans are plans that are shared by employers in the same industry, typically bargained between employers and labor unions. Multiple employment plans allow businesses in completely unrelated industries to pool their resources under the same retirement plan umbrella.
Within a MEP, one lead employer acts as the plan operator and claims fiduciary responsibility for the overall plan. Participant employers join the plan and agree to the basic elements of the plan. Responsibilities among the participants vary depending on how the plan is established and whether the MEP is open or closed.
Currently, a closed MEP is only open to employers that have common interests and/or organizational relationships – similar to a multi-employer plan but using the lead/participant structure. The audits, forms, and other paperwork related to the Employee Retirement Income Security Act (ERISA) are the responsibility of the lead employer.
Anybody is allowed to join an open MEP. The same advantages remain except that each participant employer must handle their own ERISA paperwork.
As an example, consider a business composed primarily of part-time workers and/or independent contractors (think Uber or similar service startups).
The business could establish a MEP as the lead employer and allow all their independent contractors to join the MEP as a series of sole proprietors. This would enable the business greater leverage and give them the ability to engage in perks like matching contribution programs. In this particular case, a closed MEP would be more useful since they all share a common interest and the paperwork burden would be simplified for the independent contractors.
MEPs exist primarily as state-sponsored entities, but they are still in limbo as Congress never passed RESA – the 2016 effort passed the House but stalled in the Senate. However, the Senate Finance Committee has revised and updated the original RESA bill to make it even easier for small businesses to offer retirement plans. It's unclear whether the new plan will pass either the Senate or the House.
It's likely there will be an MEP or something similar in your future – especially given the new gig economy and its dependence on independent contractors and smaller businesses. The end product may not look like the existing MEP plan, so read the details very carefully.
A 401(k) is an important part of your retirement strategy – so take advantage of any 401(k) offer that comes your way, whether it's a standard corporate 401(k) or a MEP plan that you have to seek out on your own. If you're having trouble making the best choice for your situation, seek the help of a qualified financial advisor. A comfortable retirement may hinge on your decision.
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