Crafting Retirement for Brewery Owners

February 26th, 2024 • by Nate Collins
Nate Collins

Nate Collins

Nate Collins is a Financial Advisor on the Scharf & Selden Wealth Management team at Raymond James. He has been involved in the New York craft beer industry since 1989 and is a co-producer of the Tap New York Craft Beer and Music Festival.

Exploring the Pros and Cons of Multiple Employer Plan (MEP) 401(k)s

For owners of craft breweries, ensuring a secure financial future is just as important as perfecting the next batch of IPA or stout. As entrepreneurs navigating the complexities of both business and personal finance, the decision to offer retirement benefits to employees can be daunting. One avenue worth exploring is the Multiple Employer Plan (MEP) 401(k), a retirement savings option that comes with its own set of advantages and disadvantages.

What is a MEP 401(k)?

A Multiple Employer Plan (MEP) 401(k) is a retirement savings plan that allows multiple unrelated employers to participate in a single 401(k) plan. This arrangement enables smaller employers, like craft breweries, to join together to offer a retirement plan to their employees. In a MEP 401(k), each participating employer maintains its own separate account within the plan, providing flexibility and autonomy while sharing administrative responsibilities and costs.

Advantages of MEP 401(k) Plans:

  1. Cost Savings: One of the primary benefits of a MEP 401(k) plan is cost efficiency. By pooling resources with other employers, breweries can reduce administrative expenses, investment fees, and fiduciary responsibilities. This can be particularly advantageous for small to medium-sized breweries that may not have the resources to establish and maintain a standalone retirement plan.
  2. Reduced Administrative Burden: Managing a retirement plan involves various administrative tasks, from recordkeeping to compliance testing. With a MEP 401(k), much of this burden is shared among participating employers or outsourced to a professional third-party administrator (TPA). This allows brewery owners to focus on running their businesses rather than navigating complex retirement regulations.
  3. Access to Institutional Investments: MEP 401(k) plans often provide access to a broader range of investment options and potentially lower-cost institutional funds compared to individual employer-sponsored plans. This can result in better investment returns and enhanced retirement savings for both employers and employees.
  4. Fiduciary Support: By participating in a MEP 401(k), brewery owners can share fiduciary responsibilities with other employers or delegate them to a professional fiduciary, such as a TPA or investment advisor. This can help mitigate liability and ensure compliance with ERISA (Employee Retirement Income Security Act) regulations.

Disadvantages of MEP 401(k) Plans:

  1. Limited Control: While MEP 401(k) plans offer cost savings and administrative convenience, they also entail relinquishing some control over plan design and investment options. Employers must abide by the terms and conditions set forth in the MEP, which may not always align perfectly with their preferences or objectives.
  1. Complexity of Participation: Joining a MEP 401(k) requires careful consideration of eligibility requirements, contribution limits, and plan features. Employers must also assess the financial stability and regulatory compliance of the MEP sponsor to ensure the long-term viability of the plan.
  2. Potential Risks: Although MEP 401(k) plans can provide economies of scale and risk-sharing benefits, they also carry certain risks. If one employer within the MEP fails to meet its obligations or violates retirement plan regulations, all participating employers may be affected, potentially exposing them to legal and financial liabilities.

Why MEP 401(k) Plans are Important for Brewery Owners:

For owners of craft breweries, MEP 401(k) plans offer a practical and cost-effective solution for providing retirement benefits to employees while minimizing administrative burden and fiduciary risk. By joining forces with other employers, brewery owners can access institutional investments, reduce costs, and ensure compliance with retirement plan regulations. While MEP 401(k) plans may not be suitable for every brewery, they represent a valuable option worth exploring for those seeking to prioritize both their business and employees’ financial well-being.

In conclusion, the decision to adopt a MEP 401(k) plan should be made carefully, weighing the potential advantages and disadvantages in the context of each brewery’s unique circumstances and objectives. By taking a proactive approach to retirement planning, craft brewery owners can better position themselves and their employees for a prosperous future both in and out of the brewhouse. Cheers to a secure and fulfilling retirement journey!

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Nate Collins and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. Raymond James and its advisors do not offer tax or legal advice.