Multiple Employer Plan

<div class="Section1"><br /> <br /> Under the SECURE Act, even unrelated employers that do not operate in the same industry or in the same geographical location (or otherwise) can, beginning after December 31, 2019, join together in what may be best described as an “open MEP.” This means that the PEP is really a MEP meeting MEP requirements. Except, a PEP requires no concrete nexus of industry or geography, or other “commonality” involving participating employers in the PEP. About all that PEP employers need to have in common is a “Pooled Employer Provider” (PPP). For ERISA purposes, a PEP is treated as single plan, which allows for the filing of a single 5500. The PEP filing does require:<br /> <ul><br /> <li>a list of the participating employees;</li><br /> <li>a good faith estimate of the contribution percentages and account balances tied to each employer; and</li><br /> <li>identifying information.</li><br /> </ul><br /> Importantly, a PEP also only requires a single ERISA bond equal to 10 percent of the funds handled, but not to exceed $1,000,000.<br /> <br /> The PEP must be administered by a pooled plan provider (PPP), which is likely to be a financial services firm.<a href="#_ftn1" name="_ftnref1">¹</a> The PPP must be responsible for all administrative duties and be named by the plan as the named fiduciary and as the ERISA Section 3(16) plan administrator. It must also register with the Treasury Secretary and DOL as such.<a href="#_ftn2" name="_ftnref2">²</a> It must also make certain all parties who will handle plan assets are properly bonded.<br /> <br /> Use of the pooled plan provider to act as both plan administrator and a fiduciary with respect to the plan is intended to ease both the administrative burden and fear of fiduciary liability for small business owners. However, each employer, participating in a plan with a PPP, will be treated as plan sponsor with respect to the portion of the plan attributable to employees and beneficiaries of that employer.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> The SECURE Act rules that apply to PEPs are effective for plan years beginning after December 31, 2020.<a href="#_ftn4" name="_ftnref4">⁴</a> The SECURE Act directs the Treasury to issue additional guidance on many of these issues (including model plan language). However, before this guidance is released, the law provides that employers and pooled plan providers will not be treated as failing to meet a requirement if they make a good faith, reasonable effort in interpreting the new provisions.<br /> <br /> Other than the unique PEP requirements listed above, PEPs must generally follow the same requirements as MEPs. Differences, to the extent there may be any, will be noted in the Questions discussing MEPs that follow.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Under the SECURE Act, MEP availability has been expanded even further to permit “open MEPs,” referred to as PEPs, which are MEPs formed by employers with no commonality of interest other than offering the retirement benefits under the plan. PEP providers are likely to be financial service institutions. PEPs will enjoy the advantage of being treated as a single plan; hence allowing for the filing of a single 5500 and maintenance of a single ERISA bond, in addition to other efficiencies.<br /> <br /> <hr /><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 413(e)<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  IRC § 413(e)(3).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.  IRC § 413(e)(3)(D).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.  MEPs established prior to December 20, 2019 must affirmatively elect to be a PEP.<br /> <br /> </div>

<div class="Section1">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:<a href="#_ftn1" name="_ftnref1">¹</a><br /> <p style="padding-left: 40px;">(1)  Under the DOL guidance, the association must have at least one substantial business purpose that is not related to offering the plan.</p><br /> <p style="padding-left: 40px;">(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.</p><br /> <p style="padding-left: 40px;">(3)  The association must adopt a formal organizational structure, which includes bylaws, a governing body and other organizational aspects where relevant.</p><br /> <p style="padding-left: 40px;">(4)  Only employees of the association’s employer-members and certain working owners may participate in the MEP.</p><br /> <p style="padding-left: 40px;">(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.</p><br /> 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.<a href="#_ftn2" name="_ftnref2">²</a> Financial services firms, however, cannot qualify under the expanded MEP regulations.<br /> <br /> 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.<a href="#_ftn3" name="_ftnref3">³</a> 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.<a href="#_ftn4" name="_ftnref4">4</a> However, as of July 2024, the case has not been resolved.<br /> <br /> 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.<a href="#_ftn5" name="_ftnref5">5</a> 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.<a href="#_ftn6" name="_ftnref6">6</a> 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”).<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  DOL Reg. 2510.3-55(b)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  DOL Reg. 2510.3-55(b)(2).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.  <em>Khan v. Directors of the Pentegra Defined Contribution Plan</em>, No, 7:20-cv-07651 (S.D.N.Y. Sept. 15, 2020).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a> 20-CV-07561 (PMH) (S.D.N.Y. Sep. 26, 2023)<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a> PL 116-94, § 101.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a> PL 116-94, § 202.<br /> <br /> </div>