Our Firm was approached by a large insurance agency who sponsored a Multiple Employer Retirement Plan. A Multiple Employer Retirement Plan (MEPs) is a retirement plan adopted by two or more employers who are unrelated for income tax purposes.
The Situation
There are three types of MEPs. The first type of MEP is a retirement plan sponsored by a Professional Employer Organization (“PEO”) that is adopted by the PEO’s clients; the second is a MEP sponsored by an industry or trade group to be adopted by the group’s members; and the third is a MEP co-sponsored by the participating employers who have no relationship or connection to each other, other than participating in a common plan (the “open” MEP). The insurance agency sponsored the first type of MEP.
The insurance agency and Plan Sponsor of the MEP also owned a Professional Employer Organization and processed payroll for participating employer plans. The insurance agency engaged our Firm with three goals in mind; 1) Reduce Fees 2) Reduce Liability and 3) Increase investment quality.
Often insurance related solutions are utilized with MEPs and have high fees. The combination of maintaining a plan for other employer employees and high service / investment fees creates a greater level of risk in which the Plan Sponsor wanted to reduce. The Plan Sponsor engaged our Firm to evaluate the MEP fee structure and eventually assist with a new service provider and investment menu.
The Approach
The MEP contained over 30 participating employers in a group annuity insurance contract with high service provider and investment fees. We evaluated the MEP fee structure and conducted a Request for Quote from several service providers.
The Result
A reduction in total retirement plan fees (service provider and investments) of 60%. A reduction in Plan Sponsor liability with the addition of two independent third party fiduciaries accepting fiduciary status in writing. Participants who do not make an affirmative investment selection are defaulted into the qualified default investment alternative (QDIA). The percentage of participants prior to Chesme Capital Management’s involvement was 77%. After conversion the QDIA percentage dropped to 38.1%.