3763 / What are the basic qualification requirements for forming a multiple employer plan (MEP) under the final DOL regulations?

The DOL released final rules governing MEPs on July 31, 2019, which became effective as of September 30, 2019. In general, to quality as a multiple employer plan (MEP) under the final regulations, a plan must satisfy five basic requirements:¹

(1)  Under the DOL guidance, the association must have at least one substantial business purpose that is not related to offering the plan.

(2)  The employer-members of the association must control the MEP’s activities and any employers that participate in the MEP must control the MEP both in substance and in form, whether directly or indirectly.

(3)  The association must adopt a formal organizational structure, which includes bylaws, a governing body and other organizational aspects where relevant.

(4)  Only employees of the association’s employer-members and certain working owners may participate in the MEP.

(5)  Under the DOL rules, some “commonality” of interest must exist between the employers participating in the MEP, such as the same industry or geographic location—a substantial expansion over prior rules, which required a more concrete nexus between participating MEP employers.

This means that participating employers can be located in the same city, county, state or even multi-state region. Companies operating in the same industry can join together even if they operate in entirely different regions.² Financial services firms, however, cannot qualify under the expanded MEP regulations.

Of course, one of the intended primary objectives of a MEP is to achieve lower costs of administration for the participating employers, and by extension, their participating employees. Failure to do so may carry risks for a MEP and its administrator. In September 2020, a lawsuit was filed against the MEP administrator by several plan participants of one participating employer alleging excessive fees by the administrator.³ The court granted the administrator’s motion to dismiss in part in March of 2022.  On September 26, 2023, the district court granted the plaintiff’s motion for class action certification.4 However, as of July 2024, the case has not been resolved.

For plan years beginning after December 31, 2019, the SECURE Act eliminated the “one bad apple” “unified plan” rule, which could result in the entire plan being disqualified because of the bad actions of a single employer in the MEP.5 The Act also directs the IRS and DOL for provided for a consolidated, simplified Form 5500 for similar plans. Plans must be defined contribution plans, have the same trustee, the same named fiduciary (or fiduciaries) under ERISA, the same administrator, use the same plan year, and provide the same set of investment or investment options.6 The SECURE Act went even further in eliminating the common nexus rule all-together for certain MEPs, and created another category of MEP, referred to as a to as “pooled employer plans” (“PEP”).