Small businesses use retirement plans to attract and retain quality employees. Many, however, are not prepared for the time, administrative responsibilities and costs associated with being a plan sponsor. All business owners, I’m sure, do not welcome the exposure to employee lawsuits a qualified plan presents. The plan sponsor, (see business owner), retains the ultimate liability if something goes wrong with the plan.
This article will compare and contrast 401K Single Plan sponsorships vs. Multiple Employer Plans (M.E.P.). I will illustrate how business owners can reduce and eliminate certain administrative responsibilities, litigation exposure, and investment fiduciary decisions by using MEP’s.
A business owner who sponsors a 401K plan has investment and administrative responsibilities and duties. These include, but are not limited to the following:
- Form investment committee
- Develop quantitative and qualitative process for plan
- Establish and maintain an investment policy statement
- Select investments
- Ongoing monitoring
- Remove and replace funds
- 404C compliance
- Year end 5500 tax preparation
- Plan valuations and audit
- Administer plan provisions
- Establish and appoint plan administrator
- Determine and monitor employee eligibility
- Initial and ongoing employee education
- Administer loans and distributions
The above responsibilities result in increased costs for the business owner as they allocate precious, limited resources to complete the tasks. Resources that could be better utilized manufacturing widgets, managing their legal or medical practices, and in general marketing and growing their business.
Fortunately, there is an option for cost-conscious lean-operating entrepreneurs. Outsource your plan by becoming an adopting employer of a Multiple Employer Plan, (MEP).
I learned about this option by attending a private gathering of successful financial consultants at the Barrington Country Club, in Aurora, Ohio, south of Cleveland. It was there that I listened to Bill Thompson, Regional Sales Director for Ameritas Retirement Plans. With over 35 years of experience in retirement plans, Bill has seen it all.
I was so intrigued about what MEP’s could mean to Cleveland area businesses that I asked Bill if I could interview him for this article. He welcomed the idea and we sat down for coffee.
Bill explained that MEP’s were once restricted to Professional Employer Organizations and to employers that were members of a trade or industry association.
Today, MEP’s are open to most employers and are gaining wide acceptance for those plan sponsors looking to reduce their administrative burden and reduce fiduciary risk.
A Multiple Employer 401K Plan is a single plan sponsored by an independent plan sponsor. It covers employees of various unrelated employers using the economies of scale associated with centralized administrative services. Also, good news, in this litigious society, MEP’s mitigate fiduciary risk for adopting employers.
Bill went on to explain that the principle benefits to an adopting employer are as follows:
- Reduces administrative functions
- Frees up time of internal staff and executives
- Eliminates CPA audit
- Streamlines plan cost
- No 5500 tax filing (done by MEP)
- Significantly reduces fiduciary liability
Compared to the above listed 14 investment and administrative responsibilities for a Single 401 K Plan, the Multiple Employer 401K Plan has these three responsibilities for the business owner:
- Select design options
- Submit and deposit 401K contributions each pay period
- Provide annual account census and payroll data
If you are an entrepreneur looking to set up a new retirement plan or you would like to improve your existing plan, the Multiple Employer 401K Plan is an option to consider.
For additional information on the Multiple Employer 401K Plan, email your request for an informative MEP brochure with your mailing address to firstname.lastname@example.org. As always, if you have a business topic you would like to see addressed or if you have a business success story or company you would like to see profiled here, email me at the above address. If I use your business topic as an article you will receive a free e-copy of my “Entrepreneurs Guide to Emergency Planning.”