MEPs: Just One Piece of the Retirement Puzzle

We are facing a retirement crisis in America that is growing every day. Many people are simply not saving as much as they should, and when they do save, they’re starting too late. There are many causes for this, some of which we uncovered in our 2018 Millennium Trust Small Business Retirement Survey, which explored the attitudes and perceptions of workplace savings programs among small business employers and employees.

The government has made some steps to address this crisis, including for small businesses. In particular, there has been a growing bipartisan appetite in Washington to expand a little-known program called Multiple Employer Plans, or MEPs. MEPs, like 401(k)s, are an excellent fit for some businesses, but our survey showed that small businesses are looking for more options.

What is a Multiple Employer Plan (MEP)?

An MEP is a type of defined contribution plan that functions as a single platform for two or more unrelated employers to come together and offer one plan for all of their employees. This type of approach provides smaller companies with much needed economies of scale and allows for more workers to have access to a retirement savings plan.  

And it’s easy to understand why there is interest in expanding this program. MEPs are a common sense solution for expanding defined contribution plans and making them less cost-prohibitive, easier to comply with, more transparent, and ultimately simpler for employers to offer. MEPs make the whole process of saving for retirement easier and more flexible for both the employers and the employees.

MEPs are only one piece of the puzzle.

While this represents great progress for expanding access to retirement savings plans, MEPs will play just one part in solving our growing retirement crisis. To put the problem in perspective, The Pew Charitable Trusts estimates that approximately 42% of the current workforce is not employed by a company that offers a qualified workplace savings program. Clearly, that’s a huge issue.

Similarly, in our survey, we found that 55% of small businesses looked at offering a retirement plan but ultimately chose to not offer one. This was usually because of cost or the perception that their company wasn’t large enough to offer a retirement savings option to their employees.

To magnify the importance of employer-sponsored savings programs, a recent study by AARP found that individuals are 15 times more likely to save for retirement if they can do it through their workplace. So where do we go from here?

State-sponsored plans provide another option to increase access.

There are solutions being developed at the state level, which reflect very different approaches. Some states like Oregon, California, and Illinois have created auto-IRA programs and instituted mandates that require employers to either offer a plan for their employees or enroll them in the state’s mandated IRA program. Other states have created open marketplaces, where various providers can offer retirement savings options for both employers and employees in those states. There is no question that these plans are well-intended, and they will likely result in more access.

But small-businesses want a private solution, too.

Like MEPs, state-by-state solutions are just small pieces in the greater effort to enable more retirement savings access for American workers. In fact, according to our survey, if companies were mandated by the government to offer a retirement savings program, 71% of employers would prefer the plan to come from a private sector financial services firm, as opposed to a government entity.

Businesses of all sizes should have choice and flexibility when thinking about how to structure their retirement programs and best serve their employees. Different options fit different companies with different needs. Everyone should have options when it comes to workplace savings, as well as the right education to help them make the best choice.

Here at Millennium Trust, we are continually working to champion solutions that can make it easier for Americans to boost their retirement savings abilities.

Visit Workplace Savings Solutions to learn more.

The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.