The Attraction and Pitfalls of Multiple Employer Plans
What are MEPs?
Multiple employer plans (MEPs) are defined as a retirement savings structure (such as a 401(k) plan) that enables multiple businesses to offer a retirement plan controlled by a single qualified plan.
MEPs usually are administered by a Multiple Employer Plan Sponsor (MEP sponsor). MEP sponsors have been formed as limited purpose corporations whose sole purpose is to administer the benefits offered by an MEP. MEP sponsors have been around for a number of years but have gained popularity in the past few years as employers continue to look for ways to cut costs. There has been an increase in marketing to small (less than 100 employees) businesses, professional employer organizations, and associations by MEP sponsors advertising retirement savings for both the employer and the employee.
The Attraction of MEPs
The attraction of adopting an MEP is cost savings. Employers who adopt MEPs generally avoid paying the annual and incidental cost of administrating a retirement plan. MEP sponsors assume the responsibility for the administration of the plan, such as obtaining and paying for the annual audit of the plan, filing the required 5500 forms, and performing annual compliance testing. Another attraction of adopting an MEP is that most MEP sponsors structure the plan with the flexibility of allowing employers to customize the benefits that they offer, thus employers only pay for the benefits that they chose.
The Pitfall of MEPs
The problem is that not all MEPs are created equally. There are what’s called Traditional MEPs and Open MEPs. Traditional MEPs include employers who have some level of commonality or affiliated group status and only those employers that meet the criteria of commonality are permitted in a Traditional MEP. Most Traditional MEPs consist of religious, charitable, and educational institutions. Open MEPs can include unrelated organizations that have no obvious level of commonality.
It is due to this lack of commonality amongst employers, that Open MEPs can possess, which lead the U.S. Department of Labor (DOL) in its May 2012 advisory opinion to conclude that “where several unrelated employers merely execute identically worded trust agreements or similar documents as a means to fund or provide benefits, in the absence of any genuine organizational relationship between the employers, no employer group or association exists for purposes of ERISA section 3(5)”.
DOL Advisory Opinion (What it Means?)
The DOL’s advisory opinion seems to be fairly clear in that no employer group or association group exists under ERISA section 3(5) by the agreement and adoption of identical trust agreements. If an MEP does not have group status (commonality) than the employers who have adopted that MEP may have unknowingly adopted an arrangement whereby each participating employer establishes and maintains a separate employee benefit plan for the benefit of its own employees. This means that an employer could be the sponsor of a plan that is subject to the ERISA filing requirements and not be aware of it.
If you aren’t sure whether your organization has adopted an Open MEP, it may be prudent to contact an ERISA attorney.