What Is a Multiple Employer Plan?

A Multiple Employer Plan (MEP) is a type of retirement plan that allows multiple, unrelated employers to participate in a single, shared retirement savings plan. This structure is designed to offer small and mid-sized businesses access to the cost efficiencies and administrative benefits typically available to larger organizations with standalone retirement plans. By pooling resources under a single plan, participating employers can reduce administrative burdens, simplify compliance requirements, and potentially lower costs compared to maintaining separate 401(k) plans.

How MEPs Work

A MEP is sponsored by an entity known as the plan sponsor or MEP provider, which is responsible for overseeing plan administration, investment selection, compliance with the Employee Retirement Income Security Act (ERISA), and regulatory requirements set by the Internal Revenue Service (IRS) and Department of Labor (DOL). Employers who join the MEP, known as adopting employers, enroll their employees under the plan and make contributions on behalf of eligible workers.

The MEP provider typically handles fiduciary responsibilities, including managing investment options, ensuring compliance with ERISA rules, and filing necessary reports such as the Form 5500. This structure reduces the administrative workload for participating employers, as they do not have to take on full fiduciary liability or manage complex recordkeeping tasks.

One key feature of MEPs is that they allow employers to leverage economies of scale. Since multiple companies are participating, the total plan assets tend to be larger than those of individual small business plans. This can lead to lower investment fees, improved plan options, and more efficient administration. Additionally, MEPs can provide a level of fiduciary oversight that individual employers may find challenging to maintain on their own.

Types of MEPs

There are two primary types of Multiple Employer Plans:

1. Closed MEPs – A closed MEP requires participating employers to have a common relationship, such as being part of the same industry or trade association. Historically, these plans were considered single employer plans under ERISA, which meant fewer compliance obligations for participating businesses.
2. Open MEPs (or Pooled Employer Plans - PEPs) – Open MEPs allow unrelated employers to join a shared retirement plan without requiring a common link between them. The passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 made Open MEPs more accessible by removing previous restrictions and creating Pooled Employer Plans (PEPs). Under this model, a third-party Pooled Plan Provider (PPP) serves as the fiduciary and administrator, assuming the legal responsibility for plan management.

Advantages of MEPs

For small and mid-sized businesses, joining a MEP can provide several advantages:

• Reduced Administrative Burden – The MEP sponsor takes on most compliance tasks, such as annual testing, government filings, and investment selection. This allows business owners to focus on their core operations instead of navigating complex retirement plan regulations.
• Cost Savings – By pooling assets with other employers, businesses can access lower-cost investment options, reduce administrative expenses, and eliminate the need for individual Form 5500 filings in many cases.
• Stronger Fiduciary Oversight – Many employers lack the expertise or resources to effectively manage a retirement plan. MEPs shift much of the fiduciary responsibility to professional plan administrators, reducing liability exposure for individual employers.
• Attractive Employee Benefits – Offering a retirement plan through a MEP can make a business more competitive in attracting and retaining employees. Employees benefit from professionally managed investment options and employer contributions, encouraging long-term savings.

Disadvantages and Considerations

Despite their advantages, MEPs are not without drawbacks. Some potential challenges include:

• Loss of Control – Employers who join a MEP must adhere to the plan’s structure and investment options, limiting customization. Individual employers cannot create unique plan provisions tailored to their specific workforce.
• Potential Compliance Risks – In some cases, if one employer in a MEP fails to comply with regulatory requirements, it can impact the entire plan. This is referred to as the “one bad apple” rule. However, the SECURE Act introduced provisions that allow noncompliant employers to be removed from the plan without jeopardizing the entire MEP.
• Exit Restrictions – Leaving a MEP can be complicated, as employers must meet specific criteria and navigate plan separation processes. Exiting employers may need to establish their own retirement plan or transfer assets, which can involve additional administrative work.

MEPs and the SECURE Act

The SECURE Act of 2019 played a significant role in expanding access to MEPs. By removing barriers that previously required participating employers to have a shared industry or organizational connection, the law enabled broader adoption of Open MEPs, now known as Pooled Employer Plans (PEPs). The Act also established the role of Pooled Plan Providers (PPPs), who serve as fiduciaries responsible for managing the plan, ensuring compliance, and handling administrative duties. These changes made it easier for smaller businesses to offer retirement benefits without assuming the full burden of plan management.

Who Should Consider a MEP?

A Multiple Employer Plan can be a strong option for small and mid-sized businesses looking for an affordable and efficient way to offer retirement benefits. Businesses that do not want the complexity of administering their own 401(k) but still want to provide a competitive plan for employees may find a MEP to be an attractive solution.

Trade associations, professional groups, and franchise networks also commonly use MEPs to provide a standardized retirement plan option for their members or franchisees. Employers should carefully evaluate MEP providers, comparing administrative fees, investment offerings, fiduciary protections, and exit policies before enrolling in a plan.

The Bottom Line

A Multiple Employer Plan (MEP) offers an efficient way for small and mid-sized businesses to provide retirement benefits by pooling resources with other employers. This structure can lower costs, reduce administrative burdens, and improve fiduciary oversight, making it a practical alternative to standalone 401(k) plans. However, employers must weigh the trade-offs, including reduced control over plan design and potential complexities when exiting the plan. With the introduction of Open MEPs and Pooled Employer Plans under the SECURE Act, more businesses now have the opportunity to take advantage of these benefits, making MEPs an increasingly viable option in the retirement planning landscape.