When we talk about retirement plans, many employers think of single employer retirement plans. A single employer retirement plan is simply a plan sponsored by one employer (or a related group of employers) for the benefit of its employees. In contrast, a multiple employer plan (MEP) is a retirement plan that is sponsored by two or more unrelated employers. Historically, MEPs have allowed employers, who may not have the resources to handle a retirement plan independently, to pool together to share the administrative burden of offering a retirement plan to their employees. Although they may sound similar, MEPs are not the same as multi-employer plans. A multi-employer plan is a collectively bargained plan maintained by more than one employer, usually within the same or related industries, and a labor union.
Prior to the enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act on December 20, 2019, all employers participating in the MEP had to share a nexus or common interest other than the retirement plan. The DOL had previously taken the position that if adopting employers did not share a common interest, the MEP was not considered to be a single plan for ERISA and Form 5500 purposes. The SECURE Act essentially reversed the DOL position by creating a new type of MEP, the Pooled Employer Plan (PEP). PEPs allow two or more unrelated employers who do not meet the regulatory commonality requirements to come together under one retirement plan.
Another welcome change provided under the SECURE Act is the elimination of the IRS’ “one bad apple” rule. In the past, the IRS took the position that if one employer ran afoul of the IRS qualification requirements, the entire MEP could be disqualified. Eliminating the one bad apple rule shields participating employers from liability from failures of the actions of a non-compliant MEP member.
While there are similarities between MEPs and PEPs, there are also many fundamental differences. A few of the key features are contrasted below.
- Participating employers are treated as a single employer for certain purposes, such as crediting of eligibility and vesting service and plan qualification purposes.
- Participating employers are treated as separate employers for coverage, non-discrimination, and top-heavy testing purposes, and employer deduction limitations.
- In most cases, only a single Form 5500 needs to be filed. The 5500 must include an attachment that lists all participating employers along with an approximate percentage of total contributions for the year and the account balances attributable to each.
- MEPs are adopted by two or more unrelated employers that share a nexus or interest other than the retirement plan, while a PEP is adopted by unrelated employers that do not share a common interest.
- A MEP is made up of the MEP sponsor, or lead employer, and one or more participating employers, while PEPs must be operated by pooled plan providers (PPP), likely to be a financial services company, third-party administrator, insurance company, recordkeeper, or similar entity.
- The MEP sponsor generally serves as the primary administrative fiduciary for the plan, while with a PEP, the PPP is responsible for performing most administrative and fiduciary functions for the plan. In a PEP, employers retain only limited responsibility, such as selecting and monitoring the pooled plan provider, any other named fiduciaries, and investment managers. The SECURE Act requires pooled plan providers to register with both the DOL and the Treasury Department.
Proponents of MEPs are encouraged by recent changes and are hopeful that the availability of PEPs will greatly increase the number of employees covered by employer sponsored retirement plans. However, it is unclear whether they will have a significant impact on the MEP landscape. While MEPs can be attractive to employers that want to provide a retirement plan to their employees but lack the financial and administrative capacity to do so, there are potential disadvantages of which employers should be mindful. Examples of some disadvantages include the potential for increased costs due to the involvement of multiple service providers and conflicting participating employer priorities. It is important for employers to be well informed of the potential benefits and pitfalls related to participating in a MEP. It is also important to work with an experienced service provider who can provide guidance on this complex issue.
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