Here's our latest (more or less monthly) tribute to Scott Simon's excellent work at on fiduciary issues at Morningstar.com, this time on the under-appreciated potential of multiple-employer retirement plans. Here's a key excerpt:
Some advisors to plan sponsors such as ERISA attorneys believe that many of their clients don't consider a [Multiple-Employer Plan, or] MEP and the use of a fiduciary protocol such as a professional named fiduciary because they perceive it to be too costly and something that only larger retirement plans can afford. Uh, let's see: "too costly"--as compared with what? The kind of investment options--woefully underdiversified with hidden (and therefore high) costs--that populate and plague the 401(k) plans at even many Fortune 500 companies?
Many independent ERISA section 3(21) named fiduciaries don't depend on the existence of 12(b)-1 fees or other subsidy payments. Instead, they usually choose low-cost, passively managed funds such as index funds and asset class funds for a plan's investment options and eliminate unnecessary services that drive up costs. Retirement plans run by independent fiduciaries are priced differently, and even after the fiduciary's fees are taken into account, the total "all-in" cost is almost always lower.
Micro-sized retirement plans can enjoy the protections and other advantages of a MEP managed by an ERISA section 3(21) fiduciary and ERISA section 3(38) fiduciary team. That way, the smallest plans can take advantage of the pricing that some of the very largest retirement plans enjoy. Although it may seem counterintuitive, independent fiduciaries are the most affordable method for delivering results-based services to plan participants (and their beneficiaries), while reducing risk to employers more significantly than any other current method offered in the retirement plan marketplace. That's why a MEP or a single employer plan in a MEP-like scenario using an independent fiduciary not only makes practical sense, it also makes real economic sense.
In our practice, a multiple-employer plan for which we serve as a 3(38) fiduciary is a great example. Due to our breakpoints, our advisory fee is lower for each adopting co-sponsor than it would be for any of them outside of the MEP structure. These are real economies of scale for real participants (and sponsors). Good stuff.
Scott calls multiple-employer plans "the platinum standard" of fiduciary delegation, a concept that builds on his recent series on delegation per se. Read the whole column. It's excellent.
