Experts Robert Bloink and WilliamByrnes are coauthors of Tax Facts, a reference solutionthat helps to answer critical tax questions and provides the latesttax developments.

Beginning in 2021, small-business clients will have even moreoptions for providing retirement benefits to employees. The SecureAct removed the commonality of interest requirement that previouslylimited multiple employer plans (MEPs) to businessowners who shared the same geographic location or industry—creatinga new type of MEP. Under the Secure Act,employers will be able to offer MEPs, association retirement plans(ARPs) and pooled employer plans (PEPs).

While it can be generally said that ARPs and PEPs are simplyexpansions on the MEP, small business clients who wish to exploreoptions for joining with other businesses to offer retirementbenefits should understand the nuances of all three structuresbefore jumping into the MEP pool.

Multiple Employer Plans (MEPs): The basics

Historically, to participate in MEPs, all participatingemployers were required to share some strong type of commoninterest separate and apart from the retirement plan itself. Theneed to share some type of affiliation or participate in the sameindustry sharply limited the availability of the "original"MEP—also called a "closed" MEP.

The basic premise behind the idea of MEPs has remained thesame—multiple small businesses join together to reduce theadministrative burden and potential fiduciary responsibilities ofoffering a 401(k)-type retirement plan. However, the DOL acted in2019 to expand MEP availability if certain criteria are satisfied.Congress enacted the Secure Act to even further ease therestrictions on the types of employers who can join together,assuming additional criteria are satisfied, and eliminate some ofthe risks associated with MEPs.

Association Retirement Plans (ARPs): The 2019 DOLregulations

In 2019, the DOL released regulations designed to expand accessto MEPs. Some in the industry began referring to these new MEPs asassociation retirement plans (ARPs) to differentiate from theoriginal "closed" MEP, and to clarify that ARPs must satisfyadditional criteria in order to be treated as qualified plans.Essentially, the ARP is a type of MEP, and the terms have mostlybeen used interchangeably.

Under the ARP structure, employers that share only the samegeographic location or industry are permitted to join together inthe MEP. The participating employers can be located in the samecity, county, state or even multi-state region. Companies operatingin the same industry can join together even if they operate inentirely different regions. The ARP can be sponsored by a permittedgroup of employers if certain formalities are satisfied (theorganization of employers must be bona fide, with organizationaldocuments and control over the MEP in substance and in form,directly or indirectly, among other requirements).

In the alternative, ARP members can now join together in a plansponsored by a professional employer organization (PEO). When a PEOis used, that PEO must accept administrative responsibility forsubstantial employment-related duties, such as responsibility forpaying wages to the participants' employees, including allwithholding and reporting responsibilities. The PEO must also havea role in recruiting, hiring and firing employees of theparticipating employers, and must play a substantial role inadministering the employers' benefit offerings.

While the 2019 regulations were broadly seen as beneficial tointerested small business owners, employers who choose this type ofplan structure may continue to be subject to the "one bad apple"rule, absent further guidance from the IRS or DOL.

Pooled Employer Plans (PEPs) post-SECUREAct

Building upon the momentum surrounding MEPs, beginning in 2021,the Secure Act permits MEP participation for employers who share nocommon interest apart from the desire to offer a retirement plan.The Secure Act also eliminated many concerns about the "one badapple" rule by providing that the entire plan would not bedisqualified based on a single participant's actions.

Under the Secure Act, these types of MEPs are also called pooledemployer plans (PEPs)—another name for a type of MEP that meetscertain additional requirements to avoid the commonality ofinterest requirement and one bad apple rule. The PEP will betreated as a single retirement plan, so that the group will only berequired to file a single Form 5500 to further reduce theadministrative burdens for each of the individualemployer-participants.

This type of "open MEP" must be administered by a pooled planprovider (generally, a financial services firm). Use of the pooledplan provider to act as both plan administrator and a fiduciarywith respect to the plan is intended to ease both theadministrative burden and fear of fiduciary liability for smallbusiness owners.

The pooled plan provider must register as a fiduciary with theTreasury Department and the DOL. The pooled plan provider also musthave a trustee responsible for monitoring contributions and dealingwith subsequent issues that arise.

Small business clients should understand that, as employer, theycontinue to bear fiduciary responsibility with respect to selectingand monitoring the pooled plan provider. Pooled plan providers canoutsource investment decisions to another fiduciary (likely what isknown as a "3(38) fiduciary"). This arrangement does spread thecosts of investment advice among the MEP participants to reduceexpenses, but the extent of the employer's fiduciary exposure stillremains unclear under the law.

MEP evolution's ripple effects

The rapid evolution of the MEP in the past year has created awhole new cast of acronyms that small-business clients and industryprofessionals must learn. At the most basic level, ARPs and PEPsare a product of the MEP's evolution, representing the loosening ofMEP restrictions that has been granted in exchange for satisfyingcertain additional requirements under the new laws.

William Byrnes,Esq., LL.M., CWM, is an executive professor and associate dean ofspecial projects at the Texas A&M University School of Law. Apioneer of online legal education, he also is the author orco-author of 20 tax books and legal treatises. Byrnes is also theco-author of Tax Facts, a reference solution that helps to answercritical tax questions and provides the latest taxdevelopments.

Robert Bloink, Esq., LL.M., hastaught at the Texas A&M University School of Law and the ThomasJefferson School of Law; in the past decade, Bloink has initiated$2B+ in insurance & alternative asset class portfolios, andpreviously served as a senior attorney in the IRS Office of ChiefCounsel for the Large- and Mid-Sized Business Division. Bloink isalso the co-author of Tax Facts, a reference solution that helps toanswer critical tax questions and provides the latest taxdevelopments.

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