The GAO issued its long awaited study on Multiple Employer Plans. It is nicely written, and for those who with an interest in such matters, it’s a good read.
It pretty well summarizes the current state of affairs related to MEPs. The report, along with our own recent review of MEPs, really demonstrates a few key points:
1. MEPS, under current rules, operate best in a controlled environment. The report makes it clear that there remains a great deal of uncertainty, ambiguity and risk in a MEP unless it is a controlled environment. For example, the problems associated with recognizing service of a participant with all participating employers can be a serious challenge (particularly in those PEOs with thousands of employers); the “one bad apple” rule can be expensive for the sponsor of a MEP to fix, especially when spinning off the plan doesn’t work as a cure; there is a potential co-fiduciary liability issue no one discusses; and there is that insistence by the DOL that both commonality and control be met. What this all adds up to is that, unless you are working with a small, identifiable group-such as franchisees or other closely related firms; with a group of companies with close working relationships (such as in a “non-controlled” group with common ownership); or in a traditional association, its going to be tough to adequately address these sort of risks under the current MEP rules.
2. There are better arrangements.
When you look closely at it all, the alternatives to MEP arrangements can be pretty favorable, with a lot less risk for both the participating employers and the MEP sponsor. There are legitimate ways to create fiduciary and investing relationships which accomplish the similar end result of a MEP (the good Mr. Pozek
coined the term “APA”, or ”Aggregated Plan Arrangement”) which uses existing DOL and IRS rules to accomplish virtually the same thing as a MEP-the exception being dealing with the audit costs. However, there are even suitable ways to deal with that under certain circumstances.
3. A MEP fix is a way off. The GAO encouraged the IRS and the DOL to move “sooner than later” in resolving what it found to be the lack of coordination between the regulatory agencies, and the agencies all agreed. Given their current workload and the delays in, for example, one of the agencies issuing something as relatively straightforward as the new EPCRS program, one can only imagine the priority an interagency coordinated regulatory effort would receive-and how soon it would come to be. And even then, the simplest coordination is to declare that the DOL current rules on MEPs are a precondition to application of 413(c). I suspect legislative changes would occur much before we see the agencies acting.
And legislation? The priority for the retirement industry this coming year will be preserving the 401(k) system, and I would expect MEP solutions to be given low priority.
In short, risk, particularly in non-traditional MEP markets, is likely to be a regular companion.
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