Mindful About MEPs: What You Want to Know

Troy Tisue Talks Turkey About Something Old That’s New Again

Troy Tisue! You've been active in the Multiple Employer Plan (MEP) space for how many years?

Too long. (Laughing) over 19 years, since 2001, with TAG Resources.

Tell us a little bit about TAG Resources, because I think a lot of people don't know much about what you are, what you focus on, and your expertise.

Yes - we started TAG to capitalize on what we had learned about running 401(k) plans. I had a background in working for a TPA in the great state of Iowa and I loved talking to participants. That's really where I cut my teeth in this business. I was the guy that delivered pizza and donuts to everybody, sharing educational information on their retirement plan. I was in good graces of the participants from “hello”. Talking to participants was my favorite part of this business-- and it still is.

We wanted to expand that experience by getting in front of more people. Our message: short of any action you take today, there's not a whole lot of positive outcomes that will matter; Retirement doesn't take care of itself. You realize the difference you can make just by having a conversation with people. And what I wanted to do is replicate that by having as many conversations as possible to help get these people in plans. And I knew what we could do if that opportunity presented itself.

When we started TAG, by chance we landed professional employer organizations as our first clients, PEOs. Everyone knows what those are today, but in 2001 outsourcing was a newer concept for a small business. PEOs were early users of Multiple Employer Plans, or MEPs. These allowed for efficient outsourcing for small businesses in a way that did not exist before. These plans had one set of rules, one investment lineup – and it was available to hundreds of employers serviced by that PEO. What it quickly represented for me was the opportunity to service a large number of small employers. Getting a signature for one PEO group represented 200 chances to deliver pizza and donuts-- meaning being able to get in front of a lot of people and make a difference.

Do you think PEOs are an early map to MEPs coming out of the SECURE Act?

Yes, PEO MEPs really are the basis for the open MEPs, what we now call Pooled Employer Plans (PEPs) under the SECURE Act. We get a lot of credit for what we did with the Open MEP. To us, the open MEP measure is great -- we loved the idea and the work we did with PEOs. We replicated that good thinking into what is now federal legislation.

The PEO model helps small businesses by outsourcing the things that you, as a small business, aren't able to put a deep focus on. You need to make widgets and that's where your profit lies. PEOs can step in and manage HR, benefits, and payroll. We had the good fortune of being the outsourced 401(k) for the outsourcers, the PEOs, in the early days.

In 2004 we created and trademarked an offering called the Open MEP to provide another path so that you didn't have to use a PEO or payroll firm to get the great benefits of multiple employer-style retirement plans. “If you change payroll firms, you don’t have to lose us, or lose the benefits of the MEP.” These Open MEPs were growing rapidly in use and popularity and we were encouraged to seek an Opinion Letter from the Department of Labor. Regrettably, and to our view unrelated to the prudent value the Open MEPs were providing, Opinion Letter 2012-04A created a new requirement of ‘commonality’ and started something I like to call the ‘MEP Prohibition Era’. But you can’t keep a great idea down forever. Our Open MEP model became the basis for what are today’s PEPs under the SECURE Act.

Recently you talked about how SECURE Act MEPs might impact the retirement environment. What do you see?

Well, I think “impact the environment” is really an understatement. I believed back in 2011 that every small business considering a retirement plan or switching provider would at least see a proposal for an open MEP. Then the doors slammed shut on that in 2012. Fast forward to today: a good idea is hard to keep down. It was the right model. And when you talk about expanding retirement plan coverage, you can't avoid talking about multiple employer plans.

The DOL itself is expecting as many as 3,200 pooled plan provider applicants. (Pooled plan providers operate MEPs on behalf of participating client employers). That shows the magnitude of what's coming. It's hard to argue against these for a small business owner. It’s not so much the cost savings -- it's the cost of getting it wrong. We hear from employers: “I'd love to offer something for my employees, but I don't know what I'm doing. Some days I can barely do what I do well. To offer a plan, I need to hire a firm that can take ownership of it, run the process and keep me out of trouble.”

And that's where these offer such a strong opportunity. So, yes--I do think they'll have a tremendous impact. They'll probably be quoted every time an advisor talks to a small business owner about their options.

We’re hearing from you that it's not so much a cost savings as it is simplicity, the protection of knowing you're doing the right things and taking the right steps. Do you see other benefits Troy?

Well there are more than two parties that win. First and foremost is the small business owner, able to do something for their employees that they just don't have the staff, the resources to pull off on their own. That's a clear and easy win.

The advisor community is going to win as well. Traditionally, the small plan market is just not a focus for most advisors. As you know, there are limited assets in the small plan market; and if there are no assets, there's no revenue. If you're a newer advisor, part of your job depends on you gathering assets -- that's how you and your firm make money. So the small plan market is a market that is tremendously underserved.

Putting MEP programs in place allows for repeatability, and the ability to gather and serve assets more efficiently. One investment menu, for example, is easy to manage. You could have 5,000 plans using one investment menu. Very, very easy to manage. And that's just an easy example of how these can make the advisor's practice more efficient.

But the biggest win is and will always be the employees.  Employees don’t become participants if they don’t have access to a plan.  MEPs address that coverage gap and get people in plans in a way that nothing else can.

You asked about cost. I think cost is grossly misrepresented in MEPs.  People like to compare MEPs with large, Fortune 500-type plans. This is more than a little off.  There have been many articles and academic papers railing on the high priced nature of MEPs compared to these institutional plans. Here’s the problem with this thinking:

While a MEP might have $100 million in assets, it might be comprised of a hundred (or more) employers.  The average employer plan inside of a MEP has well under $1 million in assets, by the way.  You can’t compare this collection of small plans to a billion-dollar single employer plan. The real way to make these comparable is to ask, “if I'm going to have the fiduciary tools, services and experts that I have in a MEP, how much would these cost me on a stand-alone, single employer plan basis?  That's the only way you really should look at these. In that light, they are cheap.

We talked about the benefits of MEPs. We know the devil's in the details. Where can providers and clients get it wrong with MEPS?

Well, there are some big bear traps waiting for people that I hope the Department of Labor will provide guidance on. The first one is the Bad Apple rule. If you’ve followed MEP history over the years, the Bad Apple rule is often cited as a reason not to join a MEP. The SECURE Act removed this potential pitfall.

That said, there are some questions in how to navigate this. Here’s an example. In 2021, certain penalties for late filings will increase by 10x. That represents a significant problem if you're a pooled plan provider running a PEP. You'll always have a segment of employers that aren't going to turn payments or information in on time. No matter what you do -- you can beg, plead, threaten -- stuff doesn't come in. In a MEP structure, the whole filing can be held up and you, now in the pooled plan provider role, you're looking at some hefty penalties. Again, this can be worked through -- but definitive guidance will help those that are considering these structures.

Here’s another one: people aren't aware of what it takes to work with Department of Labor on audits. If you're going to be a pooled plan provider (PPP), you're not just providing 3(16) administrative services on a fiduciary basis, which has been a trend up to this point. We've seen a lot of third party administration firms add on extra services like these to what they already do. And 3(16) is very different than what will be required of you as a PPP provider, where you're a named fiduciary and the buck for plan compliance stops with you. As a PPP provider, you are ground zero for a Department of Labor audit. It's going to come to you. Unless you have a lot of experience and good process to rely on, you're going to be in for an eye-opening experience.

If you're a client going into a MEP or a MEP or PEP with a provider, what should you be looking out for?

If you're considering a MEP or PEP and have begun looking at different providers, experience and technology are probably the two most fundamental things you need to consider. You’ll want your provider to have experience administering multiple employer plans, including back to the early days of MEPs, and their technology needs to be based on that experience. It is worth taking the time to dig deep into these to areas of a MEP/PEP offering.

Congratulations are in order, Troy. TAG Resources was recently selected as Third Party Administrator for Vermont’s Green Mountain Secure Retirement Savings Plan. What's interesting to you about this type of MEP, and about Vermont?

Well, these are great people. The process has been so thorough and thoughtful -- it's been fun to be a part of it. It's taken time because they want to get it right.

That said, I think it's important because there are so many ways to address retirement coverage at work. You see states becoming active. And I think Vermont's take is a good one. I think a lot of people are going to follow suit. And maybe we'll see a state that offers both a MEP and an Auto IRA, giving employers a dual option. Yes, I love being a part of this work. And Vermont’s Treasurer and team are great to work with.

That’s awesome. What haven't we asked you yet that's important today?

A common question I get is “who can do this work”. The fortunate thing is I think many will be able to soon - and everyone’s in a varied state of readiness toward this future. There’s so much consolidation going on in our business. We see large buyouts and movements of blocks of business in the TPA and recordkeeping arena. Some folks are concerned about this -- I'm not concerned about it. I think it's exciting; maybe we are migrating toward a model more like Europe and Australia where there are fewer providers and bigger structures.

Now, we're Americans and we want customization. I think there's a way to maintain that kind of spirit but get the leverage we all want. These superstructures are interesting to follow because they give us a sense of what the American version could be. Let’s face it -- we're an industry that still relies on fax machines as cutting edge technology for retirement. And suddenly, we're seeing modern recordkeeping platforms that can do these ridiculous, cool things. It's fun to be a part of right now. Where it's going to go it's impossible to say. It’s one of those questions you need to ask every quarter right now.

Love your enthusiasm, Troy. What's your favorite silver lining of the pandemic?

Having the kids at home was a blast. They would not agree with me on that statement, by the way. But that was a lot of fun. You think about how fast-paced everything is: kids do year round sports and you have to almost commit as an eighth grader. Like “this is my sport for life”, which is crazy. We have three daughters, ages 14, 16, and 18. Weekends are a tug of war between what you want to do for fun, and what sports are going to basically dominate the weekend. Well with the pandemic that all went away. It was fantastic. The quiet, the card games, the time together -- it was just great. Such a good time to slow down with the kids.

You used the word “was” – are the girls back in school?

Yes, they’re all in school, physically, right now. Knock on wood that's going to continue. They've done a great job here of setting standards and managing to them, quarantining when they have to. They’re letting schools take the responsibility of opening and managing education in person. I hope you get there where you are because it raises kids’ spirits quickly.

What city are you in Troy?

Knoxville, Tennessee, on the East side of the state.

Well, expect to have visitors soon!

Thank you Troy Tisue! If you want to talk to Troy in person to hear more of his forward-looking perspectives or get the inside scoop on that DOL Opinion Letter, you can reach him here. Troy is not a big tweeter but you can follow him on LinkedIn. And you can learn more about TAG Resources here.

This piece was featured in the October 22, 2020 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.