What's the difference between a CIF and a Mutual Fund?

MFs are registered securities under the auspices of the Securities Exchange, whereas CIFs are governed by the banking industry. MFs can be used in either qualified or non-qualified accounts, whereas CIFs can only be used in retirement plans. MFs can only be sold by registered investment advisors or brokers, whereas CIFs can be sold by unlicensed individuals.

What is the difference between an open and closed architecture MEP?

A closed architecture MEP is typically an association plan where there is commonality in services rendered, such as the automobile dealers association or CPA association. An open architecture MEP can consist of a diverse population companies with no common service or product. Under a recent DOL Opinion Letter, open architecture MEPs were required to provide individual Annual Returns (Form 5500s) and individual audits where applicable.

Under the new DOL Regs., what are the ongoing advantages of Open Architecture MEPs?

(1) Participating employers can aggregate AUM for enhanced buying power for services and investment net cost; and (2) Plan Sponsors can transfer ERISA fiduciary liability to the trust company sponsoring the MEP.

Is the Plan Sponsor limited to a specific Investment Product Line-up as a part of an Open MEP?

Depends in large measure on the inclusion of a 3(38) Fiduciary as a part of the service package. As a 3(38) Fiduciary, the service provider takes on the selection, monitoring and replacement of the investment line-up and can therefor reject the use of some products.

How can we control investment product costs?
  • Mutual Funds - Use low cost institutional products that may become available on the basis of the total MEP AUM
  • Collective Investment Funds - Negotiate lower net cost of MEP shareclass, based on total MEP AUM
  • Exchange Traded Funds - Trade on the ETF Master Investment Portfolio and avoid individual securites wrapper.
Which Retirement Plans May Use Collective Investment Funds?

All qualfied 401(a) plans, which include defined benefit, defined contribution, profit sharing and 401k plans can use CIFs. 403b and 457 plans are precluded from using CIFs.

Can 403b plans participate in MEPs?

No individual 403b plan canparticipate in a MEP with 401a plans. However, there is nothing to preclude 403b plans from starting their own open architecture MEP.

How can fee-based advisors get compensated from CIF sales?

Advisors can use shareclasses which incorporate fee sharing percentages as a part of the product NAV (Typically, 25, 50 and 75 bps.)

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