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Maybe Insurers Could Start Multiple-Employer Retirement Plans: DOL

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The Employee Benefits Security Administration (EBSA) has given life insurers, and other financial services companies, an early Christmas present: an expression of interest in the idea of letting financial institutions start multiple-employer retirement plans.

EBSA has just helped its parent, the U.S. Department of Labor (DOL), complete work on a set of final regulations that encourage small employers to offer association retirement plans — by treating small employers that join a multiple-employer plan (MEP) as one big employer, for some federal retirement plan regulation purposes.

(Related: DOL Puts Annuities in Association Retirement Plan Footnote)

Now, EBSA is seeking comments on a related idea: letting life insurers and other commercial entities start independent, open MEPs, separate from any other association or trade group.

The idea is that a financial institution’s open MEP could simply offer a large number of small employers the ability to offer a pooled defined contribution retirement plan, without the small employers having to attend more annual conventions, participate in more fundraising drives for worthy causes, or participate in more grassroots public awareness campaigns simply to get access to the pooled retirement plan program.

EBSA officials say DOL is organizing a request for information about the financial institution MEP concepts in response to comments on the draft version of the new MEP regulation.

“After reviewing the comments, the department is persuaded that open MEPs deserve further consideration,” officials say in the introduction to the new request for information. “The departmentdoes not believe that it has acquired a sufficient public record on, or a thorough understanding of, the complete range of issues presented by the topic.”

The request for comments is set to appear in the Federal Register Wednesday.

Comments on the open MEP concept will be due 90 days after the official notice publication date.

Financial Services Company Open MEPs

The general idea behind the MEP concept is that a big employer can get a better deal on defined contribution retirement plan services than a small employer can. So, why not make it easy for small employers to team up?

Employers that have joined together to offer traditional, multiple-employer defined benefit pension plans have had problems with solvency.

Employers that have formed multiple-employer health plans, under the old rules, have also had solvency problems.

Supporters of the financial services company MEP association retirement plan concept have argued that a MEP is a much different.

A financial services company MEP would have to collect employer and employee contributions, manage pooled assets, and keep the assets safe, concept supporters say.

But a financial services company MEP would not have to deal with the kinds of sensitive medical underwriting issues that health plans face, and it would not have to face the kinds of complicated reserving issues associated with running a defined benefit pension plan, concept supporters say.

EBSA’s Questions

The list of entities that suggested DOL should let financial services companies start stand-alone MEPs includes Prudential Financial Inc. and Transamerica, along with non-insurance financial services companies, such as Fidelity and Morgan Stanley.

EBSA asks in its second question about what kind of entity should be able to serve as an “employer” for the purpose of setting up an open MEP.

“Many commenters suggested that banks, insurance companies, broker-dealers, and other similar financial services firms (including pension recordkeepers and third-party administrators) (hereinafter “commercial entities”) should berecognized for this purpose,” officials say in the question list. “Are these commenters correct, and why? What, if any, are appropriate limitations on the types of commercial entities that should be recognized as employers?”

Here are three other types of questions included in the list.

1. Compensation Questions

“To what extent could a commercial entity that sponsors the open MEP affect its own compensation or the compensation of affiliates or related parties through its actions as a sponsor, fiduciary, or service provider to the plan?” officials ask. “What categories of fees and compensation, direct or indirect, would commercial entities, affiliates, and related parties likely receive as a result of sponsoring the MEP, rendering services to the MEP, or offering investments (including proprietary products) to the MEP?”

2. Conflict of Interest Questions

“If a commercial entity could sponsor an open MEP, what conflicts of interest, if any, would the commercial entity, affiliates, and related parties likely have with respect to the plan and its participants?” officials ask.

3. Gameboard Questions

EBSA officials describe two possible approaches DOL could take to bringing commercial entity MEPs to life.

“Is there a risk that open MEPs, under either approach, would undermine or destabilize these existing arrangements?” officials ask. “For example, would nationwide open MEPs undermine or destabilize geography-based MEPs sponsored by groups or associations? If so, what steps could the department take to mitigate such impacts?”


A copy of the final association retirement plan rule is available here.

The request for comments on the open MEP concept is available here.

— Read DOL Issues Final Rule on Association Retirement Plans, on ThinkAdvisor.

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