PRM Consulting Group


Author: Michael Rhim, Principal
April 2010

Is a Multiple Employer 403(b) Plan Right for Your Organization?

If you are like most employers, you face two common worries when it comes to your 403(b) plan:

  • How will you take on personal liability as a fiduciary under your institution’s retirement plan?
  • How will your organization pay for the accountant’s opinion that is now required to accompany the Form 5500 for 403(b) plans?

If these funding and fiduciary concerns are issues for your organization, a Multiple Employer Plan (MEP) may be right for you.

Fiduciary Liability

In sponsoring a retirement plan, human resource administrators, chief financial officers, executive directors and others may unknowingly be considered plan fiduciaries, thus subjecting themselves to operational and investment risk associated with sponsoring a retirement plan. This risk has always existed; it just has never been totally understood by 403(b) administrators, until now.

Funding for New Requirements

403(b) retirement plans with more than 100 lives have taken on a new role of increased scrutiny with the requirement to have an accountant’s opinion accompany the Form 5500 for the first time ever. This new rule is in effect for plan years starting January 1, 2009. Those January plan years have recently ended, and now the fun begins as accountants are lining up to expand business to add 403(b) clients in response to the legislated changes.

PRM Consulting Group, Inc. (PRM) has talked to several accounting firms, and charges for providing their opinions with the Form 5500 range from as low as $6,000 for a single plan with a single vendor to as high as $60,000 for a multi-vendor environment with two plans. These new costs are annual fees that 403(b) plans must now build into their benefits budgets on a go-forward basis.

There Is Hope

How would you like to shift total ERISA responsibility (including completion of the Form 5500, investment selections and all plan responsibility) to a third party and still maintain most, if not all, of your existing plan design? With a 403(b) MEP, you may be able to make this happen.

A plan sponsor has the power, pursuant to ERISA section 402(b), to delegate either limited or full scope duties to a specialized ERISA section 3(21) named fiduciary. ERISA allows institutions to go one step further and abdicate all fiduciary responsibilities by joining a MEP. Section 413(c) of the Internal Revenue Code established MEP arrangements as a viable option for qualified retirement plans such as section 401(k) or section 403(b) plans.

MEPs should not be confused with “multi-employer” plans, which are often called Taft-Hartley plans. A multi-employer plan is a collectively-bargained plan maintained by more than one employer.

A MEP is a plan maintained by two or more employers that are not required to be related. Unrelated employers retain their autonomy, thus their independence. Advantages of a 403(b) institution offering a MEP include:

  • Fiduciary risk mitigation (i.e., investment selection, plan governance, plan administration);
  • Cost reduction;
  • Elimination of audit fees; and
  • Full form 5500 reporting.

Virtually any organization can join a MEP. The main reason for joining is for cost and convenience. Under a MEP, a plan sponsor (usually a vendor) sets up the arrangement and bears all the responsibility and liability for administering the retirement plan. Plan operations fall under a separate platform that takes on the burdens of fiduciary responsibility. As a co-sponsor, your organization would not bear any fiduciary responsibility. There are several aspects to consider before adding a MEP, including the disadvantages. The major concern expressed by employers is that a MEP program limits an organization’s control over the plan terms. That may be true, and a MEP may or may not be right for your organization. However, 403(b) administrators need to be aware of this option as you evaluate and consider alternative ways to maintain a competitive retirement plan while maintaining costs and eliminating the burden of fiduciary responsibility.

Feel free to give us a call or check with other professionals before you make a decision.

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