A multiple-employer plan, or MEP, could just be the solution to your small business’ retirement needs. However, many business owners aren’t sure what a MEP is, let alone how to get one started. Let’s explore the world of MEPs to see if this type of retirement solution will meet your needs and set your employees on the path to a successful outcome.
A MEP is a single retirement plan offered to employees of multiple employers, or sponsors. The businesses in a MEP must have some theme in common, such as operating in the same industry. It’s ideal for a small business that decides it’s not economical or feasible to offer a 401(k) plan alone. There are a host of benefits, but there are also some downfalls to be aware of.
By forming or joining a MEP, you will cut down on the administration costs of forming a 401(k) plan. You and your employees will experience lower fees for investment funds and plan administration than you would if you were to offer your own 401(k). That’s because with the MEP, you’ve created more scale. Also, your employees will have greater financial security. According to Forbes, more than two-thirds of employees without a 401(k) couldn’t even save $1,000 for retirement.
You must be a qualified employer to meet the tax qualified criteria of the MEP. This is all well and good if you play by the rules. But if a single employer in the MEP fails to meet the tax standard, it could put the entire MEP in jeopardy. Also, you may have noticed sometimes employees sue their employer for excessive fees or poor investment performance in a retirement fund. While having a 401(k) plan professionally managed will mitigate this risk, employers are not immune from this possibility.
Contact us with any questions about MEPs or other types of small-business retirement planning.