In blogging, I don't typically write about informal conversations I have had with anyone, including government staff, friends or colleagues, without first discussing it with them. I fear that otherwise I would indeed lead a lonely life, as who would ever talk with me if there was a chance that conversation would end up on the internet the next day?
In spite of this, I've chosen to write about a discussion with DOL staff today only because I really think it would be helpful to add a bit more color to Ilene Ferenczy's newsletter on "Clues From the Ivory Tower," a well written piece on on the ASPPA meetings with the DOL where issues on multiple employer plans were raised, among others.
Ilene appropriately and accurately describes the conversation with the DOL on MEPS in her newsletter, but reactions on the social networks to her newsletter has lead me to think that a little more context may be useful to more fully understanding the conversation.
I was at the same meeting as Ilene. The question arose as to whether a non-association MEP would qualify as a single plan under ERISA, so to enable a single Form 5500, single audit, and a host of other things. DOL staff's reaction was that they believed that a non-benefit related commonality is needed, but they also expressed a willingness to discuss the idea. We explored several different points.
To be fair to the DOL staff, they were presented with the question almost as an afterthought, and staff had not been put on notice that we were looking for a thoughtful response. Likewise, we did not intend to prepare a case for why the answer should be one way or another. It was truly an initial response, to a sort of testing the waters on our part, with DOL staff asking follow up questions exploring why they should rule differently than with the MEWAs.
There is little doubt that any 413(c) MEP, including the non-association MEP, has substantial commonality. My ASPPA webcast
next week will outline those, but includes vesting, participation, exclusive benefit and a few other things-413(c) even has the DOL drafting special break-in-service rules for 413c, which- I think-never have been written.
What it boils down to is actually a narrow question: should ERISA 3(5) be read to require a non-benefits based commonality. That is the concern raised by DOL staff. In my view, the language of ERISA does not require this, nor is there any regulation that does it. What seems to be the genesis of this narrow construction was based upon sound public policy: it was necessary to stop those abusive healthcare MEWAs from continuing to harm participants who were purchasing non-existent health care coverage. That narrow construction worked well to "plug the dike" until Congress stepped in to change the MEWA rules without requiring the DOL to engage in contortions.
The DOL has not ruled (either by Advisory Opinion or informal guidance) on what should be required under ERISA for a 413c plan to be recognized as a single ERISA plan, using the definition of employer under ERISA 3(5). 413c, unlike the MEWA rules, requires substantial commonality to qualify under the Code section as a single plan, but it is a benefits based commonality-one which the DOL position argues against.
From a purely policy perspective, as long as the ERISA rules are followed properly, a MEP can actually enhance the compliance that MEWAs were attempting to avoid. Think about it. It really is about professionals now willing to serve as the 3(16) Administrator-after years of TPAs and other professionals (acting on advice of us lawyers) making sure they WEREN'T serving in this role. Now, there appears to be a real market need for it.
So, the DOL's initial, and informal, position is that a non-benefits commonality is required for a 413c MEP-I believe in large part because of the long line of of well established MEWA rulings saying so. I think the answer should be otherwise, as supported by the IRS regulatory structure under 413c of what constitutes a single plan, which is substantially different than the MEWA rules (or lack thereof) upon which the DOL position seems to be based. I suspect there will be some parties making this case to the DOL, in a much better prepared manner, and I would expect, over time, a thoughtful response from the DOL once they have reviewed things. But this means before one sets up a new MEP, one should do it with knowledge that the DOL may eventually not agree with this position. But there are a number of very large plans n the market already, so even the DOL's nonacquiesence may not be the end of it. Even the GAO has taken an interest, and is doing initial research on whether these MEPS are a good tool to deepen retirement plan penetration in the small end of the marketplace.
Stay tuned, and step cautiously.
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