The SECURE Act may well usher in an era of consolidation among defined contribution retirement plans, experts say.
The legislation, which was signed into law on Dec. 20 amid thunderous industry applause, made it easier for employers to join a multiple employer plan by allowing unrelated employers to band together to create a single retirement plan for their workforces. The provision for so-called "open MEPs" was largely directed at small employers unable to offer their own retirement plans but it will likely also attract employers looking to scrap their existing plans in favor of a MEP, according to industry observers.
"I think you'll see some early adopters over the next two to four years," said Clint Cary, head of U.S. delegated solutions at Willis Towers Watson PLC in Chicago, referring to employers that opt to drop their own retirement plans to join a MEP.
After the initial MEPs are up and running, there will be "a much more significant transition to those platforms," Mr. Cary predicted.
The reasons why employers already offering retirement plans would join a MEP are straightforward. By joining a larger plan, they would gain greater economies of scale, which would lower plan costs, industry experts contend. They would also be able to reduce — if not entirely offload — their fiduciary liability depending on how the MEP is set up.
Industry pundits point to the experience of Australia and the U.K., which underwent somewhat analogous changes to their retirement systems in a bid to broaden retirement coverage. Australia's superannuation system, which moved to a pooled defined contribution system in 1986, today has very few employers that offer their own plans. "Almost all of them are in superannuation plans," Mr. Cary said.