What Should Be Done When Selecting a 401k Investment Manager?

The process of choosing a 401K investment manager depends on the plan so as the services to be given. Choosing the best retirement plan may result to either retiring happy or working longer than you should be. Selecting the best 401K administrator is a very important aspect in this process. Typically, a 401K plan is being governed by the employer.

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Multiple Employer Plans Have Bright Future

As the election nears, 401(k) experts are keeping an eye on legislation that could make multiple employer plans (MEPs) an extremely favorable option.

MEPs have been around in some form since the 1960s, says Terry Power, president and CEO of The Platinum 401(k) Inc. A retirement plan established by one plan sponsor, a MEP can also be adopted by one or more participating employers. This vehicle transfers the fiduciary responsibilities and liabilities from employers to a MEP plan sponsor.

A closed MEP, explains Power, is where a nexus, or commonality, exists between the adopting companies (e.g., an association-sponsored plan exclusively for members).  An open MEP has no nexus between adopters, although they might share a common payroll provider or geography.

 Power became an “expert by proximity” -- his practice was located in the Tampa Bay area, which in the mid-1980s was a veritable hotbed of employee leasing firms. By the early 2000s, these firms needed a professional employer organization (PEO) in order to use MEPs. His firm today is a third-party administrator for numerous MEPs.

“Initially, multiple employer plans gave companies leverage through economy of scale and service while mitigating fiduciary responsibility and requiring only one overall audit,” he says.

That all changed in 2012, when the Department of Labor (DOL) issued an opinion affecting open MEPs[1]: If there was no commonality between employers -- beyond a mutual administrative provider -- the MEP would not be considered a single plan under ERISA. This meant that participating employers would have to file individual Forms 5500, conduct separate audits and adhere to other compliance requirements of individual plan sponsors.

Jason Grantz, QPA, AIFA, managing director/East for the Retirement Planning Consultant Group at Unified Trust Co., remembers this time clearly.  

“Leading up to 2012, I was hearing about MEPs all the time,” he said. “Then, the letter came out.”

The conversation on MEPs turned silent, Grantz says.

“I don’t believe it was meant to be a ‘hammer’ by the DOL,” he says. “They were just accurately interpreting ERISA at the time.”

MEPs have picked up again, though, over the past two years, thanks to a bipartisan effort to loosen DOL restrictions. Read More…

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Interview: Terrance Power, The Platinum 401(k) by Ary Rosenbaum

Multiple employer plans (MEPs) especially open MEPs have been a hot topic since the Department of Labor issued an advisory opinion that a specific Open MEP wasn’t a single plan for Form 5500 purposes. It looks like Congress may pass legislation allowing Open MEPs to be treated as a single plan again.

If you need to speak to a MEP expert, you probably can’t find anyone better than Terrance Power of The Platinum 401(k).

Q; How did you get involved in the retirement plan business?

A: I started in the industry in 1981 as a retail stockbroker in Buffalo, New York. I worked for Dean Witter Reynolds and later The New England in their Florida West Coast regional office. I joined Manulife Financial (now John Hancock) as a retirement plan wholesaler in 1990 servicing advisers and their clients across Florida for ten years. When I left Manulife in 2000 to set up American Pension Services, I terminated my Series 7, 24, and 63 licenses as we don’t compete with advisers…..we work with them. I remain the CEO/President of American Pension Services as well as the owner of The Platinum 401k, Inc., our “Open MEP” side of our business.

Q: How did you get involved with multiple employer plans (MEPs)?

A: I’ve often stated that we are “experts by proximity” with multiple employer plans. The employee leasing industry (now known as the PEO industry) had its roots in West Central Florida in the mid-1980’s. That industry experienced tremendous growth and has given us over 25 years of hands-on knowledge about multiple employer plan clients. In 2002, the IRS issued regulations that required PEO’s to move to a multiple employer plan format for their client companies (adopters). As such, our services moved full speed into that structure as well. We were one of the first major non-producing third party administrators to carve a niche in that marketplace. We still service several large PEO plans to this day.

Q: Open MEPs were a very popular vehicle until Advisory Opinion 2012-04A issued by the Department of Labor where they claimed an Open MEP such as the one in question wasn’t a single employer plan. How did that advisory opinion affect your business and the Open MEP industry?

A: The Advisory Opinion led many advisers and consultants to come to the conclusion that “MEPs are bad”. This was obviously a mistake, as the advisory opinion finally cleared up some pretty grey areas for those of us in the industry. Remember also that the IRS view of MEP’s did not change a bit……just the DOL’s opinion of certain aspects of how they are handled.

The Advisory Opinion stated that the DOL would treat each adopting employer as a separate plan sponsor…..meaning that each would have to file their own Form 5500, secure their own ERISA bond, and have an annual plan audit if the size of the plan mandated it. The ERISA bond cost was minimal, and since we’re a TPA, generating separate Form 5500’s was little more than pushing a few more buttons (we were already required under the MEP rules to test each plan separately). The Plan Audit cost was probably the biggest change, as they would have been avoided under the previous interpretation of the law. Even if a plan did require an audit, within our MEP clients have seen a dramatic cost reduction of as much as 40%.

Incidentally, after the advisory opinion was released we conducted a review of all of our adopters. We found that nearly 80% of them were not subject to an annual audit as they had less than 100 participants. That indicated that most of our adopters didn’t join our program to “dodge the audit”…..they joined because they wanted someone to run their retirement plan just like they run all of their other employee benefit programs. For benefit programs such as workers compensation or health care, employers select a provider who takes responsibility to insure that all the internal components of the program are functioning properly and then review the arrangement annually or more frequently. I think that’s an important point.

Q: What are the biggest arguments in favor of a MEP?

A: I think it’s about increasing operational efficiencies while also decreasing compliance concerns more than anything else. Clients want to focus on running their businesses, not their employee benefit programs. Advisers have planted the seed through mailers and cold calls that there is significant risk associated with running a retirement plan. For many employers, the MEP solution can alleviate many of their concerns.

Q: One of the biggest arguments against MEPs was the bad apple argument that one bad adopting employer could affect the qualification of the entire MEP. How would you respond to that?

A: I’ve been in the industry for 35 years. During that entire time I’ve never seen a multiple employer plan be disqualified. Not once. If there is a problem identified with an adopter in our program, we have total discretionary authority to spin that adopter out to a stand-alone plan immediately. At that point we could deal with any major issue and also isolate the problem.

The proposed legislation moving rapidly through the U.S. Congress via the Senate Finance Committee eliminates this issue completely, by the way. The new Pooled Employer Plan (PEP) legislation, once signed into law, will go into effect for plan years starting after December 31, 2019. We’re already beginning the conversion process for our MEP clients, by the way. More information will be available after the bill is signed at www.MEP2PEP.com.

Q: Some claim that Advisory Opinion 2012-04A contradicts the Internal Revenue code on treating a MEP as a single plan. Why didn’t the DOL make any further rulings rather than an advisory opinion for a single plan?

A: That would be a really good question to pose to the DOL. There were many of us in the industry that were left scratching our heads after the Advisory Opinion came out. I don’t have a good answer for that one.

Q: The Senate seems intent on allowing Open MEPs, do you think this is going to happen?

A: It appears that it’s only a matter of “when” at this point. The Pooled Employer Plan proposal looks great from our end. We are fortunate to already have more than 5 years of actual operating experience in our Platinum 401k Open MEP product. I think our experience and unwavering commitment to this market gives us a huge competitive advantage and will help to continue to position us as an industry leader going into the next decade.

Q: How do you think the new fiduciary rule will impact the MEP business?

A: The new fiduciary rule will impact every aspect of what we and advisers do beginning next April. We expect to be much more involved in making provider recommendations as we already act as a fiduciary. The MEP/PEP business will become a fiduciary solution for advisers and brokers who don’t want to be fiduciaries. Our program solves many of the challenges around the new rule and provides a retirement plan solution for fiduciaries would prefer not to be fiduciaries.

Q: Matt Hutcheson was an independent fiduciary who was sentenced to 17 years in federal prison for embezzling money from MEPs he controlled. Did that negatively affect your business and do you think it had any impact with the DOL on their advisory opinion on Open MEPs?

A: It didn’t really impact our business. Every year the Department of Labor issue 50 or so press releases that list plan fiduciaries who have either misappropriated monies, breached their duties, converted plan assets for their own use, and dozens of other prohibited transactions. 95% of the plans having these issues are single employer plans. May be more. Crooks come in all flavors. Mr. Hutcheson just happened to choose a MEP as the vehicle to loot for his own benefit. It could just as easily have been a defined benefit plan, target benefit plan, ESOP, or any other type of plan. I believe that the timing of his arrest and subsequent conviction may have influenced the actions of the DOL, but we have no way to be certain.

Q: The DOL under President Obama through fee disclosure and the fiduciary rule is pro-participant, do you think the way they handled Open MEPs is the one thing they got wrong?

A: I politely disagreed with the DOL’s position in the Advisory Opinion, but then again I’m not occupying an office at 200 Constitution Avenue NW. I understand the rationale behind the decision, and perhaps issuing the Advisory Opinion gave all of us a chance to take a step back and make sure we had suitable rules in place to expand MEP’s. I was delighted to provide testimony before the Department of Labor’s ERISA Advisory Council in August 2014 on the subject “Outsourcing Employee Benefit Plan Services”. The Council did an outstanding job of taking in the testimony of several industry pros in reaching their recommendations in early 2015. Their work helped to underscore the need for these types of programs, which Congress is taking up and which I believe will be sent to the White House before the end of 2016.

Q: If people want more information on your MEP expertise, where can they find it?

A: They can always visit us at www.ThePlatinum401k.com for more information. Our website detailing the conversion from MEP’s over to the new PEP’s in 2019 will go live shortly after the proposed legislation is signed into law. That website is at www.MEP2PEP.com. We’ll be announcing that in the media, most likely in early January.

I can also be reached by email at tpower@theplatinum401k.com or by phone in Clearwater, Florida at 813.774.3366 if your readers have any questions.

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401(K) Outsourcing: The next Big Thing

Outsourcing is the hiring of a consultant from outside the company to complete a task or provide a service that they are better suited to do then your own employees. Many small to midsized plans are beginning to outsource 401(k) fiduciaries. Companies outsource many services, including payroll, auditing, marketing, legal defense, building maintenance, HR services and advertising, to name but a few. The reasons for outsourcing generally include:

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Multiple Employer Plan Expansion Imminent?

When the American Retirement Association reported last week that the Department of Labor had recently submitted a "final rule" to the Office of Management and Budget pertaining to "Savings Arrangements Established by States for Non-Governmental Employee", it raised an inquisitive eyebrow.

There are questions surrounding the various structures associated with state sponsored retirement plan schemes for private sector employees that this proposed rule will likely address. The questions range from state sponsorship of retirement plans with a marketplace approach, to prototype plan formats, and - a topic close to my heart - multiple employer plans.

There has been a well deserved outcry from the private sector retirement plan community about the need for us to be able to compete with these new state-sponsored plans on a level playing field. The proposed state-sponsored "open multiple employer plan" format contains pretty much all of the features that we would like to see made available under private sector plan rules.

This format should be expanded to the private sector 413(c) multiple employer plans as well.

We anticipate that the submitted rule changes will include the elimination of a "nexus" or "commonality" among adopters, elimination of the "one bad apple rule" that could - in theory - disqualify a multiple employer plan due to the actions of a rogue adopter, allow for one global Form 5500 (with only one plan-wide annual plan audit) regardless of the number of adopters, and a few other upgrades that were somewhat restricted back in 2012 via a DOL Advisory Opinion. No one knows for certain what's in the rule at this point. It's anyone's guess.

The 2017 U.S. Budget, as proposed by the Obama administration, contains $100,000,000 to allow for the expansion of multiple employer plans in an effort to broaden retirement plan coverage and simplify the duties and liability on employers who wish to offer a retirement plan to their employees.

The timing of the actions by the DOL not only ties in with the upcoming effective dates of some of the state programs, but they also may be preparing to set in motion the expansion of multiple employer plans as a private sector solution for the small to mid-market retirement plan sectors at the same time.

It would make sense for the Department of Labor to level the playing field by addressing some of the restrictive issues that currently hinder the rapid expansion of retirement plan coverage under a broader multiple employer plan availability. It would also tie in nicely with the wishes of the Obama administration and a bipartisan Congress to expand these programs before the upcoming election.

Maybe things are about to fall into place. We'll know exactly what the new rules state no later than the end of October.

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What Kind of “fiduciary” Are They?

When you’re looking for relief from the personal liability and financial risks of being a 401(k) plan fiduciary, not all fiduciary protection is alike. You don’t stop being a plan fiduciary just because a vendor signs on as a plan fiduciary or gives you a certificate!

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Exclusive Interview with Terrance Power: 401k MEPs Reduce Downside Risk for Company Execs

For some time now, readers have seen Terry Power quoted frequently in many a FiduciaryNews.com article. Ever since we first met him at the 2012 fi360 Annual Conference, we’ve considered Terry one of our pre-eminent “go-to” guys when it comes to all things MEP. He is the Founder and President of The Platinum 401k, Inc., the independent marketing organization of American Pension Services, LLC located in Clearwater, Florida. Terry has been in the retirement plan industry since 1981 serving as an adviser, a retirement plan wholesaler, and a fee-for-service third party administrator. He is a frequent speaker at industry functions and has provided testimony before the United States Department of Labor ERISA Advisory Council on the subject of Outsourcing Employee Benefit Plan Services.

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ERISA 3(16) Plan Administrator Services Summary

We receive a lot of inquiries about our 3(16) Plan Administration services from clients and advisers across the country. From our perspective, the decision to utilize a 3(16) administrator verses simply becoming an adopting employer within an Open Multiple Employer Plan is similar to the decision whether to order the "value meal" or "a la carte" off the menu in the drive-thru at your local fast food restaurant.

Both options have benefits as well as limitations. 

The "value meal" multiple employer plan approach is pre-packaged and ready to go. You probably won't have to wait in that special parking spot if you just go with "#4 and a medium coke". But there's little room for major customization. You'll likely get a price break going with the packaged deal since there are some efficiencies that the restaurant gains by having you buy something that's pretty much already set up.

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NYC Proposes Their Own Private-sector Retirement Plan, Making a Bad Idea Even Worse

New York City's mayor Bill de Blasio called for a city-run retirement system for private sector employees in his annual keynote “State of the City” address last week, following the lead of more than a dozen states across the country.

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