by Ron W. Hagan
In a recent article appearing in CFO.com, Jeff Mamorsky revealed a surprising development that could change the game for multi-employer plans ("MEP"). Highlighted in this revelation was the report by the Department of Labor ("DOL") indicating that MEPs may not satisfy the requirements of ERISA if there is not a sufficient "connection" between the plan sponsor and the participating employers.
The term "connection" is thoroughly defined in the article. In summary, it is a relationship "between an employer and employee that participate in the plan by some common economic benefit or representation interest or genuine relationship unrelated to the provision of benefits." This could challenge the arrangements between a professional employer organization ("PEO") and its co-employer clients.
While it seems that the DOL is preparing to tighten the belt on its definition of the business relationship between service provider and co-employers (or participating employers) in a MEP, the bigger picture and heavier weight of burden has to do with the DOL's concern that participating employers are engaging in MEPs to relieve themselves of ERISA fiduciary responsibility.
Fiduciary Protections that Fail in the Courtroom
There are many business models in the retirement plan industry that claim to offer fiduciary protection. Very few vendors' claims of such protection are surviving tests in cases involving breaches of fiduciary duty against plans sponsors. And rarely do plan administrators test the validity and functionality of these providers' claims. In particular, there are many PEOs that promote their version of fiduciary protection with words like...diminish, reduce, eliminate fiduciary liability...for their co-employer clients. It is this claim that gives us great pain, for both the PEO and the co-employer.
Sowing the Wind to Reap a Whirlwind
I just read about another conflicted service provider that offers TPA, recordkeeping, and investment advice services, promoting its great victory in landing thousands of small employers. It's main pitch to the market is its ability to offer a retirement program to these employers "without their incurring any plan sponsor or fiduciary liability." This was released just 10 days after the article appeared in CFO.com.
Is anyone reading this stuff? Does anyone care? Co-employers will, of course, eventually care.
The Good Guys Still Wear White Hats
With that said, there are PEOs that work very well for their clients. But they are also the ones that do not deceive their clients. They disclose the fact that the co-employer maintains the fiduciary responsibility to prudently select and monitor the performance of the PEO in accordance with best-practice standards. These PEOs equip their clients with ways to monitor them; objective and transparent proof, not deception.
Ironically, the retirement plan service providers (PEOs included) are all too willing to provide a myriad of services that they have defined and developed, while also unable and unwilling to offer the one thing their clients need the most. If you'd like to know more about that one thing, please click here.
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