MEPs can be attractive tosmall and midsized businesses that identify cost and administrativecomplexity as barriers to offering a workplace retirement plan.(Photo: Shutterstock)

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The current administration has set one of its regulatoryobjectives to make retirement plans more accessible to the generalworkforce.  As a result, multiple employer plans have received renewedfocus from both the Department of Labor and Congress.

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A MEP is a plan maintained by two or more employers that are notpart of a “controlled group” under Internal Revenue Code rules.

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This is different from “multiemployer” plans, which coveremployees of more than one unaffiliated employer but are jointlysponsored by employers and a labor organization.

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MEPs can be attractive to small and midsized businesses thatidentify cost and administrative complexity as barriers to offeringa workplace retirement plan.

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MEPs can provide economies of scale created by pooling assetsfor investment, potential limits on fiduciary responsibilities forparticipating employers, and potentially reduced reporting anddisclosure costs.

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In August 2018, President Trump issued an Executive Orderdirecting the DOL to develop proposals toexpand workplace access to retirement plans. It specificallydirected the DOL to “clarify and expand” the circumstances under which small and midsizedbusinesses may sponsor or adopt a MEP.

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The DOL took its first stab at this mandate by issuing proposed regulations in late Octoberthat defined “employer” for purposes of “Association RetirementPlans and Other Multiple Employer Pension Benefit Plans.”

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Under currently applicable DOL guidance (in the form of a seriesof Advisory Opinions spanning several years), the DOL requires agroup or association of employers to be a “cognizable group orassociation of employers, acting in the interest of its employermembers” in order to join together in a MEP.

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Currently, the DOL guidance does not allow a group of employerswith no nexus to join together and offer a MEP.

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So, for example, a group of 20 employers with no nexus thatadopt the same plan are simply 20 different plan sponsors with 20different plans—not one MEP with 20 participating employers.

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The DOL's proposed regulations elaborate on the definition of“employer” in three specific circumstances, but the basic conceptof a “nexus” remains.

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The proposed regulation, which called for comments by December24, sets out criteria for a group of employers to be considered a“bona fide group or association.” The group must meet the followingrequirements:

  • Have a formal organizational structure and be controlled by itsemployer members.
  • Have at least one substantial business purpose unrelated tooffering and providing employee benefits.
  • Limit plan participation to employees and former employees ofmembers.
  • Have members with a commonality of interests that are eitherthe same industry or the same geographical area.
  • Ensure that each employer member acts directly as an employerfor at least one employee participating in the plan.
  • Not be a financial services firm (in other words, a planadministration business cannot sponsor a MEP).

The proposed regulation also sets out criteria for when a“professional employer organization” can sponsor a MEP. The PEOmust do the following:

  • Perform “substantial employment functions” on behalf of theclient employer.
  • Have substantial control over the MEP and be its sponsor, namedfiduciary, and plan administrator.
  • Ensure that each client employer that adopts the MEP has atleast one employee covered by it.
  • Ensure that participation in the MEP is limited to employeesand former employees of the client employer.

The proposed regulation also sets forth factors for determiningwhen a PEO performs “substantial employment functions,” as well as“safe harbors” that a PEO could rely on if a certain number ofthose factors are met.

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Finally, the proposed regulations offer some clarification aboutthe ability of sole proprietorships, and the self-employed personhimself or herself, to participate in a MEP.

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There are certain minimum thresholds of compensation receivedand/or hours worked for the sole proprietorship, but the proposedregulations would generally provide an avenue for soleproprietorships to offer the MEP and for the self-employedindividual to participate in it.

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There are also bills pending in Congress with very similarlanguage concerning MEPs that would, in many respects, go further than the DOL's proposed regulationsbecause the legislation dispenses with the nexus requirement.

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The House passed the Family Savings Act of 2018 (which wouldtake effect in 2020) and the Senate passed the RetirementEnhancement and Savings Act (to take effect in 2022), which bothallow for “pooled employer plans” with no common interest requiredand require each pooled employer plan to have a “pooled planprovider.”

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They also address the “one bad apple” problem by protectingparticipating employers from losing tax-qualified status if oneparticipating employer fails to meet the requirements.

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And Representative Kevin Brady, outgoing Chair of the Ways andMeans Committee, recently proposed a lame-duck session tax bill:The Retirement Savings and Other Tax Relief Act of 2018, whichcontains generally the same terms on MEPs as the FSA and RESA witha 2020 effective date.

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MEPs may be the rare issue to have some bipartisan traction inthe coming year.  If this expansion of MEPs does occur, itcould affect plan sponsors and service providers alike, and emergeas a “disrupter” in the retirement industry.

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Morgan, Lewis & Bockius LLP partner JulieStapel helps employee benefit plan sponsors and financialservice providers with the investment, and management of employeebenefit plan assets. This article is for informational purposes andshould not be relied on as legal advice.

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READ MORE:

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Commonality for MEPs proposed for businesses insame state, municipality

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The DOL's MEP proposal: Is Labor pickingwinners?

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Would open MEPs disrupt the 401(k)market?

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