United States: Multiple Employer Plans (MEPs) - An Overview Of Legal, Regulatory And Plan Design Considerations For States

Last Updated: September 7 2017
Article by David Morse

Co-authored by Angela M. Antonelli

Executive Summary

Americans are facing a retirement crisis. The foundation for building a secure retirement—Social Security, employer-provided pensions, and personal savings—has been weakened because most private sector companies no longer provide pension plans for their employees, questions remain about how to finance future Social Security benefits, and employees have not saved much on their own for their retirement. For more than 40 years now, approximately one-half of the private sector workforce has lacked access to an employer-sponsored retirement savings plan. The deterioration of the foundation for retirement security is one of the greatest economic and financial challenges facing our nation today.

In the absence of federal action, states are leading the way and transforming the retirement savings landscape. Since 2012, at least 40 states have introduced legislation to either establish a state-facilitated retirement plan or study the feasibility of establishing one for private sector workers. Nine of these states—California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Oregon, Vermont, and Washington—have enacted legislation to expand access to retirement savings plans.

While several of these states have enacted individual retirement accounts (IRAs) using auto-enrollment or "auto-IRAs," states have other defined contribution (DC) options, including multiple employer plans (MEPs). While IRAs are limited by the lack of employer contributions and lower individual contribution ceilings, MEPs are qualified retirement plans regulated by both the Internal Revenue Code ("Tax Code") and the Employee Retirement Income Security Act (ERISA) of 1974. These more regulated retirement plans allow for higher levels of savings and employer contributions and represent an alternative that can function alone or with an auto-IRA or other state-facilitated program.

Today, a MEP would be a 401(k)—a specialized employer DC retirement plan to which employees may make tax-advantaged contributions from their wages. A MEP offers several advantages for employers, including: reduced investment and administrative fees; a simplified turnkey process for obtaining a plan document, selecting and monitoring the investment platform and the recordkeeper, IRS reporting, obtaining an independent audit, and similar chores; and the ability to outsource most of the heavy lifting to the sponsor and its team of outside experts so employers can significantly minimize their exposure to possible ERISA liability. These programs should garner sufficient assets to achieve economies that would encourage small and mid-sized employers to offer their workers a retirement plan without the costs, fears, and difficulties normally associated with ERISA regulations.

To some, ERISA coverage conjures up visions of onerous fiduciary obligations and unlimited liability. ERISA does have a lot of rules, but it also provides workable standards for running a retirement program, a sound set of participant protections, and a well-established system for resolving disputes over benefit claims and operating the plan with useful guidance for handling other people's money.

Congress, the U.S. Department of Labor (DOL), and the Internal Revenue Service (IRS) would be welcome to further simplify compliance and mitigate risks to make it even easier for states to sponsor open MEPs. States should support efforts in Washington, D.C., to make MEPs an even better retirement savings vehicle. A 401(k)-style MEP with auto-enrollment/escalation would harness a proven formula for helping employees save meaningful amounts for retirement.

This paper provides an overview of how ERISA and the Tax Code, as well as securities and other laws, would apply to a state-facilitated MEP.

I. Introduction

Americans are facing a retirement crisis. The foundation for building a secure retirement—Social Security, employer-provided pensions, and personal savings—has been weakened for many reasons, including most private companies no longer provide pension plans for their employees,1 questions remain about how to pay for future Social Security benefits, and employees have not saved much on their own for their retirement.2

A lack of retirement readiness has consistently been a top financial concern for American families for more than a decade.3 Most Americans report a lack of confidence in their ability to prepare adequately for their own retirement.4 If they can put money away for retirement, they often do not take the time to understand how much they will need to save and, even if they do, they are fearful they will never be able to save enough to last a lifetime.5 This fear only grows as life expectancy in the United States continues to increase, posing new challenges for future generations of retirees.6 Between now and 2030, 10,000 baby boomers will reach retirement age every day. The population aged 65 and over in 2030 is projected to be more than 74 million, representing more than 20 percent of the total U.S. population.7

The deterioration of the foundation for retirement security is one of the greatest economic and financial challenges facing our nation today. Social Security was never meant to be the sole source of income for retirees, yet Social Security accounts for at least half of total retirement income for over 60 percent of recipients and over 90 percent of income for more than a third of recipients.8 According to the U.S. Government Accountability Office (GAO), the overall median balance for working, prime-age households with a DC account in 2013 was $41,900.9 As of December 2016, the average monthly Social Security benefit for a retired worker is $1,360,10 enough to place him or her only about 30 percent over the poverty level.11

American workers should have easy access to simple, low-cost ways to save and look forward to a level of financial security in their retirement. The ability of more workers to improve their retirement readiness is made challenging today because more than one-half of all private sector workers— approximately 55 million Americans—do not have access to retirement savings programs through their employer.12 Workers are 15 times more likely to save for their retirement if they have a way to save through an employment-based plan.13

Small businesses account for approximately two-thirds of workers without access to retirement plans.14 Small employers recognize that a lack of retirement security hurts business and the overall economy; however, many of them are overwhelmed by the number of plan options, plan legal and administrative requirements and paperwork, and fiduciary responsibilities, such as selecting investment funds and managing plan assets.15 Moreover, small business owners indicate that cost is the biggest barrier to offering a retirement savings plan.16 Thus, many private sector employees are left without access to the simplest ways to save for retirement and do not take any steps to begin saving on their own.

Most Americans agree that the country's retirement system is under stress and in need of reform.17 For several years, the White House and Congress have failed to act on legislative proposals to establish new retirement savings programs to close the access gap among private sector workers.18 Because of the potential budgetary and economic consequences of this failure to address the deterioration of retirement savings for millions of American workers and their families, states have begun to develop retirement savings options for private sector workers.

States are transforming the retirement savings landscape. Since 2012, at least 40 states have introduced legislation to either establish a state-facilitated retirement plan or study the feasibility of establishing one. Nine of these states—California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Oregon, Vermont, and Washington State—have enacted legislation to expand the accessibility and effectiveness of retirement savings for private sector workers.19

New and innovative public-private partnerships are being tested by the states. While several states have established IRAs using auto-enrollment or "auto-IRAs" (California, Connecticut, Illinois, Maryland, and Oregon) or adopted marketplaces (Washington and New Jersey), Vermont recently became the first state in the nation to pass legislation establishing a MEP.20 A MEP is a single retirement plan adopted by two or more unrelated employers. But what are the legal and regulatory considerations in establishing such a plan, and how does it differ from an auto-IRA plan?

MEPs are covered by ERISA, the Tax Code "qualification" rules, and other federal laws. ERISA was passed in 1974, and is administered by the DOL, to protect participants and beneficiaries in private sector employee benefit plans, including retirement plans (defined benefit and DC). ERISA exempts federal, state, or local governmental plans;21 however, a retirement plan created and/or operated by a government for private sector employees would not be considered a governmental plan. A state could not escape ERISA regulation simply by bringing private sector workers into its own retirement system.

While much of the policy discussion to date has been focused on auto-IRAs designed to be exempt from ERISA, IRAs are limited by the lack of employer contributions and lower individual contribution ceilings. MEPs are ERISA-regulated plans allowing for higher levels of savings and employer contributions and are an alternative that can function alone or with an auto-IRA or other state program.

To read this Report in full, please click here.

Angela M. Antonelli is a Research Professor and the Executive Director of the Georgetown University Center for Retirement Initiatives at the McCourt School of Public Policy.


1 Employee Benefit Research Institute (EBRI), "FAQs About Benefits –Retirement Issues," https://www.ebri.org/publications/benfaq/index.cfm?fa=retfaq14.

2 According to the EBRI's 2017 Retirement Confidence Survey, among workers providing this type of information, 47 percent report that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit (DB) plans, is less than $25,000, including 24 percent who say they have less than $1,000 in savings. See Greenwald, Lisa, Copeland, Craig and VanDerhei, Jack (2017), "The 2017 Retirement Confidence Survey: Many Workers Lack Retirement Confidence and Feel Stressed About Retirement Preparations," Employee Benefit Research Institute, Issue Brief No. 431, p. 12, https://www.ebri.org/pdf/surveys/rcs/2017/IB.431.Mar17.RCS17..21Mar17.pdf.

3 McCarthy, Justin (2016), "Americans' Financial Worries Edge Up in 2016," Gallup, http://www.gallup.com/poll/191174/americans-financial-worries-edge-2016.aspx.

4 Over half of Americans with self-directed retirement savings report being only slightly comfortable or not comfortable making investment decisions in their accounts. See Board of Governors of the Federal Reserve System (2017), "Report on the Economic Well-Being of U.S. Households in 2016," p. 59, https://www.federalreserve.gov/publications/files/2016-report-economic-well-being-us-households-201705.pdf.

5 Financial Industry Regulatory Authority Investor Education Foundation (2016), "Financial Capability in the United States 2016," p. 15–16, http://www.usfinancialcapability.org/downloads/NFCS_2015_Report_Natl_Findings.pdf.

6 Arias, Elizabeth, Heron, Melonie, and Xu, Jiaquan (2016), "United States Life Tables, 2012," National Center for Health Statistics, National vital Statistics Reports, Vol. 65 No. 8, p.5, https://www.cdc.gov/nchs/data/nvsr/nvsr65/nvsr65_08.pdf.

7 GAO (2015), "Retirement Security: Most Households Approaching Retirement Have Low Savings (GAO-15-419)," p.1., http://www.gao.gov/assets/680/670153.pdf.

8 Ruffing, Kathy and Van De Water, Paul N. (2016), "Social Security Benefits Are Modest," Center for Budget and Policy Priorities, http://www.cbpp.org/research/social-security/social-security-benefits-are-modest.

9 GAO (2016), "Retirement Security: Low Defined Contribution Savings May Pose Challenges (GAO 16-408)," p. 13, n.30, http://www.gao.gov/assets/680/676942.pdf.

10 Social Security Administration (2016), "Snapshot of a Month: December 2016 Beneficiary Data," https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf.

11 Ruffing, Kathy and Van De Water, Paul N. (2016), op. cit.

12 AARP (2014), "Workplace Retirement Plans Will Help Workers Build Economic Security," http://www.aarp.org/content/dam/aarp/ppi/2014-10/aarp-workplace-retirement-plans-build-economic-security.pdf.

13 AARP (2016), "Letter to the U.S. Department of Labor regarding the Proposed Rule on Savings Arrangements Established by States for Non-Governmental Employees, January 19, 2016," https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB71/00039.pdf.

14 Rhee, Nari and Boivie, Ilana (2015), "The Continuing Retirement Savings Crisis," University of California, Berkeley - Institute for Research on Labor and Employment, p. 4., http://www.nirsonline.org/storage/nirs/documents/RSC%202015/final_rsc_2015.pdf.

15 GAO (2013), "Retirement Security: Challenges and Prospects for Employees of Small Businesses (GAO 13-748T)," http://www.gao.gov/assets/660/655889.pdf.

16 American Sustainable Business Council and Main Street Alliance (2013), "Poll Report: Small Business Owners' Views on Retirement Security," p. 2, http://asbcouncil.org/sites/default/files/library/docs/asbc_retirement_poll_report_june2013.pdf.

17 Oakley, Diane and Kenneally, Kelly (2015), "Retirement Security 2015: Roadmap for Policy Makers Americans' Views of the Retirement Crisis," National Institute on Retirement Security, p.1, http://www.nirsonline.org/storage/nirs/documents/2015%20Opinion%20Research/final_opinion_research_2015.pdf.

18 For information and the recent history of legislative proposals introduced in Congress, please go to the website for the Georgetown University's Center for Retirement Initiatives to access the information: http://cri.georgetown.edu/federal-legislative-proposals/.

19 For more detailed information about state programs and legislative proposals, please see the website for the Georgetown University's Center for Retirement Initiatives to access the information at http://cri.georgetown.edu/states/. For an example of model legislation to establish a state-facilitated auto-IRA and a review of state auto-IRA initiatives, see National Conference on Public Employee Retirement Systems (NCPERS), "Secure Choice 2.0: States blazing a path to retirement security for all," July 2017.

20 V.T. Legis. S. 135, No. 69, Sec. C. Reg. Sess. 2017. This law is based on the work of the Vermont Public Retirement Study Committee's Interim Study of the Feasibility of Establishing a Public Retirement Plan Required by Act 157 of the 2016 Legislative Session, submitted on January 6, 2017. As part of the Committee's report, the Georgetown University Center for Retirement Initiatives (CRI) prepared a Review of Potential Public Retirement Plan Options for Private Sector Employees/Employers in the State of Vermont outlining the retirement security challenge in the state of Vermont and laying out various plan design retirement options that states could pursue to close retirement savings gap, including a MEP option.

21 ERISA Sec 3(32), 4(b)(1).

Originally published by Georgetown University.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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