The Prototype Model. This is a model that has quite a few names.
On Friday of Memorial Day weekend 2012, TAG received the response to our DOL opinion request; by Monday we had a draft of the model that would succeed The Open MEP®– we called it the MEAP (Multiple Employer Aggregation Program). This approach has been called the Aggregation Model, the Exchange Model, and the Prototype Model; some are using this model and are still calling it an open MEP, though this description is a bit misleading.
So what is a Prototype Model? The DOL has even come out with a good “how to” description of it. You can read about it in the DOL’s latest Interpretive Bulletin here. Another good read is TAG’s white paper on this, Fixing the MEP, in which we first introduced this model after the AO 2012-04A.
But the easy way to describe it is this— it offers nearly all of the benefits of The Open MEP®, but with each employer sponsoring their own plan. 5500s are filed for each, as these are separate plans, but all are using the same common/ shared services— so that same level of aggregation as The Open MEP® is achieved. One investment menu, leveraged pricing, and delegated professional fiduciaries running the plan— sound familiar? In many respects, this is better than The Open MEP®. There is no chance of a bad apple. There is no ‘availability’ of your plans assets being used for another employer. No craziness of tracking eligibility across all employers. It also, under present rules, offers the greater level of accountability that the DOL wants. But the one thing that separates it from The Open MEP®— the simplicity of one 5500 (and one audit)! Running this aggregated approach requires high technology and automation, and if you can achieve this level of sophistication then this model truly is a cut above other options, but few 401(k) companies have been able to demonstrate this level of expertise.
The talk of “loosening the rules” to allow for more employers to take advantage of MEPs will, most likely, get rid of the bad apple potential; open MEPs will be even better if this comes to pass.
Both the original, The Open MEP®, and its successor, The Prototype Plan™, offer a level of fiduciary outsourcing that is unrivaled in the industry. When you see the popularity of 3(38) Investment Managers and the rising popularity of 3(16) Plan Administrators for hire— it is these models that pushed the envelope to get them into the discussion. With all the changes facing the industry, there has never been a better time to get familiar with best practices in fiduciary outsourcing.
I’ll be writing a lot more on The Prototype Plan™ in the next month. We’re working hard with the good folks in Washington to make a few changes on this model; should these come to pass, well… let’s just say we’ll all be winners!