MEPs provide large-company retirement benefits for the small-business market

MEPs can offer pools for defined benefit or defined contribution plans. Beyond the goals of improving retirement-plan coverage and participant outcomes, the potential of lower costs in pooled plans might encourage employers to increase benefits.

An Open MEP is a platform where a trust company establishes an open retirement plan for private for-profit companies (such as radio dealers), so small companies can join—via a joinder agreement—to offer their employees a retirement plan where they get to choose the investment benefits they want within MEP. Plan sponsors may attempt to further limit their fiduciary investment responsibilities by turning complete control of their investment lineup over to an investment manager, as defined by section 3(38) of ERISA. An investment manager is a hired fiduciary who has the power to manage, acquire, or dispose of any plan asset.

Service and investment costs are negotiated on the basis of the total assets within the MEP, so even a “start-up” plan has the buying power of the whole MEP, which is why MEPs are known as "Large-plan benefits for the small-plan market."

Finally, a retirement plan can consider age factors in setting the allocation of pre-tax contributions, so the retirement plan might be used—all, or in part—as a tax-deferred funding of a 'buy-sell' agreement among ownership partners or key employees within your firm.

This MEP arrangement is a “plug-and-play” alternative, where industry professionals run the platform and make the decisions on everything except the plan design (that is accomplished through the combined efforts of the advisor and employer), which enables the employer to focus on its revenue and profitability.

By design, MEPs create transparency upon the 401(k) industry, thus bringing about change that is overdue. Previously, the employee participant has been paying most of the cost in these smaller plans, and those costs have been high. MEPs ultimately will reduce that cost and make it possible for small-business plan costs to be similar to big-company plans.