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Using an Aggregation Program as a Solution to the Multiple Employer Plan Risk

by Robert Toth
Posted on May 2, 2013

 Multiple Employer Plans continue to be an issue for not only PEOs, but for a number of organizations which have successfully used the MEP method in the past to provide “scale” which is otherwise unavailable in the smaller end of the 401(k) marketplace.  But for the “bad actors” as in the Hutcheson matter, this scale can effectively provide smaller employers with a high level of fiduciary coverage, well priced investments, a wide variety of non-proprietary investment funds and a greater level of professional service they really could not get elsewhere.

The DOL Advisory Opinion 2012-04 has caused us to take a closer look at how to otherwise achieve this scale. Scale in investments and services, we find,  is still possible without using MEP, and in ways which tend to have a lower risk profile for both the MEP sponsor and participating employers.
 
The attached whitepaper,sponsored by TAG Resources, the applicant for Advisory Opinion 2012-04, "Fixing the MEP: Using an Aggregation Program to Manage the “ASO” Risk in the PEO Multiple Employer Plan”  discusses this alternative to a MEP. It does so in the context of addressing the  “ASO” problem in a PEO.  PEOs, regardless of their position with regard to the application of 2012-04 to their own lines of business, have a problem if they offer their MEPS on an a la carte basis,  which is referred to as the ASO ("Administrative Services Only") business.
 
This paper has application well beyond the ASO issue. It provides some thoughts with regard to the manner in which service providers may be able to effectively provide scale to the smaller case marketplace.
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Any discussion on any tax issue addressed in this blog (including any attachments or links) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any transaction or tax-related position addressed therein. Further, nothing contained herein is intended to provide legal advice, nor to create an attorney client relationship with any party.   

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MEP Reflections Following the GAO Report

by Robert Toth
Posted on October 8, 2012

 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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Any discussion on any tax issue addressed in this blog (including any attachments or links) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any transaction or tax-related position addressed therein. Further, nothing contained herein is intended to provide legal advice, nor to create an attorney client relationship with any party.   

 

 
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Reading the MEP Advisory Opinion, 2012-04

by Robert Toth
Posted on June 6, 2012

The dust has begun to settle around the DOL's Advisory Opinion, 2012-4, and a number of different voices have spoken about what the opinion says, and what it doesn't say. At this point, it may be useful to to put the letter in some context.

The clarity it brings is, in fact, very helpful. What drove the request was that need for that clarity: with the growing size and sophistication of this market, important parts of the marketplace needed more certainty in order to continue to build their business models. Though we were, of course,  hopeful for a different result, the needed guidance is now in place for this (and other similar) arrangements to properly structure and safely grow the businesses.

 Some thoughts:

1. What the DOL said.  The DOL said several important things:

-It simply stated that no two, unrelated employers may co-sponsor a single ERISA retirement plan unless those employers are (a) members of a group with an "association" type of relationship and (b) that the members of that group or association control, directly or indirectly, that retirement plan.  In much of the current discussion, by the way, the "control" aspect is often overlooked.

-In determining whether there is commonalty and control in a MEP, the Department will rely on its guidance outlined in past MEWA rulings.

-From the initial opinion request, and the DOL's response, its pretty clear that the DOL is taking the position that the decision to join a MEP (and its attendant delegation of responsibility) is a fiduciary act of the adopting employer.

2. General applicability

The Advisory Opinion is the DOL's position with regard to all MEPs, not just the one at issue. The Opinion was thoroughly vetted within the Department at length, and other agencies were consulted.  It was issued following the DOL's brief in the Hutcheson matter, and issued with another, similar AO on MEPs. It has, like all seminal DOL advisory opinions in the past, general applicability.

This means that whether a MEP is sponsored by a traditional association or otherwise, it will be subject to both the commonality and control rules. Each MEP's validity as a single ERISA plan is assessed using the MEWA rulings related to the definition of employer, and this assessment may have fiduciary implications.

Thought I do not agree with the Department's analysis, and believe that the legal basis in the initial request is a sound one, it is clearly a position with which the Department does not and will not agree. So it is to this DOL position each such arrangement of any sort will need to manage.

3. What the DOL did not say. 

The DOL properly noted, as also reflected in the original opinion request, that close attention needs to be paid in a MEP (as in any arrangement dealing with multiple employers) to the manner in which the prohibited transaction rules apply to the compensation paid to the parties in interest. This, in fact, is a key element of the design of any such arrangement. The DOL did not say that the design submitted to it violated those rules. 

The DOL did not give any type of MEP a "pass." It did make clear the rules that will apply to any arrangement seeking single ERISA plan status as a way to deliver services, and where to seek guidance for the application of those rules.

It did not "go after" TAG; the parties voluntarily sought sought firm guidance from the Department from which to base further growth in its business model.

4. The impact.  For the properly structured arrangement, the transition to comply with the DOL's formal guidance can be be straightforward, and can actually result in less risk for both the sponsor of the arrangement and the adopting employers. The advantages of scale in administrative and investment services, as well as professional fiduciary support, can and will continue to be able to be offered to the part of the market for which there is still the most need. ERISA offers a number of different ways by which  to continue to doing this, but using the "single plan" method will require that attention be paid to the the DOL's traditional commonality and control analysis.

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Any discussion on any tax issue addressed in this blog (including any attachments or links) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any transaction or tax-related position addressed therein. Further, nothing contained herein is intended to provide legal advice, nor to create an attorney client relationship with any party.   

  

 

 

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The"Bad Actor" Challenge

by Robert Toth
Posted on May 25, 2012

The DOL’s Advisory Opinion process is a helpful one, as it provides a manner in which to explore and test the development of innovative programs which are necessary for the retirement system to properly adapt and change.

 One of the Advisory Opinions issued today is a case in point. A continuing challenge in the marketplace (and, generally, for policymakers) is how to effectively increase small employer sponsorship of retirement plans in a manner which protects plan participants. In one of the MEPs opined upon, the average size of participants for each employer is small, yet those plan accounts are still subject to an audit (to which they would otherwise not be subject) under ERISA’s audit rules. Plan participants are given access to a level of individual retirement advisory services that are typically only available to the very largest 401(k) plans; these small employers are not subject to the proprietary investment fund requirements typically imposed on plans of this size; there are processes in place which monitor the employers timely deposit of elective deferrals; and, of course, the cost and variety of investments are at a level which is substantially more favorable than a small plan sponsor could get on its own. Nearly half of the adopting employers were start-ups, which most vendors for single employer plans actively avoid (shall I say like the plague?).
 
It is worth noting that this particular MEP is actually based upon accountability and participant protections, and does not relieve adopting employers from their fiduciary obligations related to the plan. It specifically demands such obligations. 
 
In short, arrangements which safely increase small employer coverage; promote fiduciary compliance and accountability by such employers; control costs for employers; while providing plan participants a wide selection of reasonably priced investments is critical to promoting retirement security.   
 
Unfortunately, there will always be “bad actors” which abuse the system. Working together with regulatory agencies, we can address the “bad actor” challenge while further enhancing the structure for a sound, secure and cost effective platform for the small employer sponsored retirement plan.
 
We look forward to continuing these efforts.
 
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The MEWA, the MEP and Regulated Scale

by Robert Toth
Posted on May 19, 2012
As you can imagine, I have been asked by a number of folks of my thoughts related to the statements by the DOL in their brief for removal of the fiduciaries in the Hutcheson matter. Besides the observation that this sort of mischief could have (and does happen) regardless of the existence of a MEP,  to my mind, its all about accountability. Lets explore this:
 
An employer, when directly acting for the benefit of its employees in sponsoring an ERISA plan, can do many things. It can delegate its fiduciary authority to a plan administrator responsible for doing those things (such as filing a Form 5500) which are legally required of the plan administrator; it can delegate the responsibility to properly operate the plan to a third party fiduciary; it can hire investment advisors, investment managers and all other manner of fiduciaries for the plan. It can even agree to become a co-fiduciary to a plan, or to appoint co-fiduciaries. 
 
What it can’t do is to do these things in such a way to avoid accountability for these acts.
 
Similarly, what an employer also cannot do is merely entrust those obligations to a group or association to act indirectly on its behalf if that is accomplished by joining a group or organization formed solely for the purposes of joining the plan.
 
This last rule was established by interpretive fiat, because the unaccountable aggregating of ERISA assets which is possible when one attempts to merely entrust a group to act indirectly on its behalf can be fraught with all manner of risks for plan participants, as demonstrated by the MEWA cases.
 
Abusive MEWAS of the past three decades were designed to effectively rob participants of their promised, and paid for, health care coverage, in the cruelest sort of Ponzi schemes. They were designed to do this by attempting to collect and aggregate the premiums of several employers in a single non-regulated pool, which provided the scale necessary to pull the scheme off.  They took advantage of ERISA’s lack (prior to PPACCA) of substantive requirements for health insurance, while effectively hiding the funds from state regulation-where all of the important participant and employer protections existed for health benefit arrangements.
 
Non-regulated “scale” was fundamental to these schemes working: without the ability to pool significant assets in one place, the arrangement would fail before sufficient (and ill-gotten) gain could be had to make it worth the effort.  The DOL’s approach was then a simple and elegant one: prevent scale from happening in the first place.  By requiring “commonality and control” of organizations acting indirectly behalf of employers, illicit organizations would be disrupted in their efforts to do harm.
 
Asset aggregation and co-fiduciary administration in the retirement plan world, however (and unlike in welfare plan world), is a highly regulated activity under ERISA, and has a long history. They have been consistently recognized and well governed from the inception of ERISA, and much earlier. Multi-employer plans; 413(c); ERISA Section 210; collective trusts; 81-100 arrangements; non-registered separate accounts; master and prototype plans; operating companies under the plan assets rules; are among many examples. Even mutual funds are a classic example of asset aggregation which is critical to the retirement world. In short, “regulated scale” is fundamental to retirement security.
 
Even then, applying the “commonality and control” rule to association based retirement plans makes a great deal of sense, as it may serve to limit the ease and availability of abusive arrangements (or structures which would lend themselves to abuse) where an employer seeks to appoint a questionable organization to act indirectly on its behalf, where it may mean that the employer is seeking to inappropriately avoid  accountability for its actions.  Allowing this to happen could undermine an important element in the effective regulation of “scale”-the oversight by, and accountability of, the employer.
 
But it is one thing to merely “entrust” employer actions to a third party appointed to stand in your shoes as an employer. It is quite another to directly and responsibly act as a fiduciary on behalf of your own employees (as permitted under ERISA 3(5)), to accept co-fiduciary responsibility (as permitted under ERISA Section 405) as a plan co-sponsor with ongoing oversight responsibilities. It would be incumbent on the employer adopting any particular MEP, for example, to make sure checks and balances are in place on the handling of funds, and to have ongoing access to data. 
 
Not only then do you have “scale” in assets and professional administration (and all the benefits that can bring to a plan and participants); but “scale” in oversight, with a large number of independent fiduciaries responsible for overseeing the action of the appointed fiduciaries in the MEP. 
 
On the other side of the fiduciary fence, we also recognize that small employers often provide the greatest compliance challenges. Imposing the oversight of a professional fiduciary under a MEP (in addition to the traditional administrative function of the typical TPA) serves well to protect the plan participant in these small plans which may otherwise be unavailable to them; provides audit oversight that typically would never happen for these small sponsors; while bringing these participants a level of investment choice and related services which only scale can bring at a reasonable cost.
 
In the end, the properly designed and well run MEP advances the policy of the small employer adopting plans, while providing a measure of protection against abuses. "Commonality" may be appropriately applied to limit the availability of MEP structures which may be vulnerable to abuse, but should it be broadly used to limit those which, by design, promote accountability?
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Any discussion on any tax issue addressed in this blog (including any attachments or links) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any transaction or tax-related position addressed therein. Further, nothing contained herein is intended to provide legal advice, nor to create an attorney client relationship with any party.   

 
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Meaningful MEP Minutiae

by Robert Toth
Posted on April 16, 2012

 I have written often of the large impact of the small, the concept of  "minimum necessary change" to accomplish what needs to be done, and have noted a number of regulatory instances where this has been-and not-accomplished.

This whole idea of small rules meaning much also has relevance in the Multiple Employer Plan world, in some very key ways. Some meaningful MEP minutiae:
 
Employer responsibility. One of the ongoing concerns related to MEPs which has garnered much discussion is the level of responsibility which remains with the adopting employer, an issue noted by Ass’t Sec’y Borzi in her recent testimony before the Senate Aging Committee. Interestingly enough, the IRS Form 5330 also speaks to this point. This form, which s used to report and file prohibited transaction penalties related to the late deposit of elective deferrals into a 401(k) plan, is required to be filed and signed by the offending participating employer in the MEP, not the Lead Sponsor (though it must be reported on the 5500 by the Lead Sponsor). The 4975 penalty tax is on that participating employer which is mishandling the deferrals. 
 
An employee.  One of the more lively discussions had always been whether the lead plan sponsor of the MEP needs to have an employee covered by the plan.  Though some have legitimately taken the position that it should be possible under current law to not have an employee, a small rule seems to get in the way. A note on page 3 of the Form 5300 (used to file for an IRS determination letter for the plan) Instructions states "if an employer has no employees, the taxpayer cannot submit as the sponsor of the plan." This seems to require the Lead Sponsor of a MEP requesting the letter to have an employee as a condition of filing for the letter.
 
One bad apple.  One of the risks in adopting a MEP is that, under IRS rules, a single bad plan can disqualify the entire MEP. What minutiae is critical here, though, is Section 10.12 of EPCRS (the IRS’s correction programs): a MEP which has a violating plan sponsor is fixed by fixing only the broken portion of the MEP (of course), but the Plan Administrator may elect to have the compliance fee or sanction based only upon the offending plan, not based on the entire arrangement; while 14.03 permits similar treatment for "tainted" assets transferred into the plan from an offending plan (if the offense does not continue). As a practical matter, this means the risk of an economic catastrophe from a single employer disqualifying an entire MEP can be cost effectively managed.
 
On a personal note, an important milestone. The Toth Ft. Wayne Sourdough Starter had its 10th anniversary this past week, being cultivated from the wild yeast in our kitchen and first used by our daughter and I on April 11, 2002.  Looking, eventually, for it to be passed onto the grandkids for their eventual baking pleasure as well.  Life is good....
 
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Any discussion on any tax issue addressed in this blog (including any attachments or links) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any transaction or tax-related position addressed therein. Further, nothing contained herein is intended to provide legal advice, nor to create an attorney client relationship with any party.   
 
 
 
 
 
 
 
 
 
 
 
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The Uncommon MEP

by Robert Toth
Posted on September 23, 2011

 Since we first published a MEP whitepaper with TAG Resources a few months back, where TAG coined the term “Open MEP,” much has happened in this marketplace. Most recently, Drinker Biddle published its own (very good) whitepaper on this topic, very much affirming, and going into closer detail on, many of the broad points we had raised in the TAG paper.  

As you can imagine, we have spent a lot of time working on this issue so as to come to a measure of comfort on how ERISA applies to multiple employer employee pension benefit plans ("MEPs"). I think we have.
 
ERISA and its regulations specifically lay out the rules which must be met for “an employer or employers” to adopt a single defined contribution multiple employer plan.These rules are extensive, effectively acting as a set of MEP qualification rules. Interestingly enough, in order to actually qualify as an ERISA MEP, the regs under ERISA Section 210 actually require that the plan first meet the rules under 413(c)-including being treated as a single plan under the Code. Here’s the “qualification” list:
 
  • More than one employer.
  • Single plan under the Code.
  • Non-collectively bargained.
  • Application of minimum coverage, vesting,  participation, non-discrimination, and benefit accrual rules in a particular way.
  • Entire plan must be able to be disqualified by one participating employer.
   
With a plan that meets the MEP rules, there are really two ways for an “employer or employers” to actually adopt it and still be honored as a single plan. 
 
The first is the Open MEP model, where an employer directly adopts the plan on behalf of its own employees.  Here, each employer adopting the MEP, including the Lead Employer, has employees who are covered by the plan.  Each employer is acting, under ERISA 3(5), on their own behalf, each for the benefit of their own employees. Simple and straight forward, no so-called "commonality" requirement to qualify as an employer. 
 
The second way to adopt a MEP, it seems to me, is the classic association model. A “person” which is not otherwise an employer adopting a plan for its own employees as an employer, adopts a MEP on behalf of other employers (with employees) that have authorized it to do so. This would not cause much of a problem under 3(5), as it is not such a stretch to recognize a “person” acting on behalf of a single employer. This is clearly permitted under ERISA Section 3(5).  But a single "person" acting on behalf of multiple employers for their employees seems to create an awkward problem:  can one "person" be seen acting as a single "employer" for many employers without there being some sort of common employment relationship between those employers appointing it? Though this may happen in other legal contexts, it is not something for which regulatory guidance has ever been developed under ERISA outside of the collectively bargained arena. Under these circumstances, then, the Advisory Opinions addressing who may act as an "employer"-and the "commonality rule"-make some sense. 
 
Does this mean, though, that all that one of those abusive MEWAs sponsors (upon which most of the DOL Advisory opinions on the definition of "employer" were based) would need to do is to cover an employee of their own organization in order to achieve ERISA MEWA status? I don’t think so. First, ERISA’s preemption rules have (since 1983) permitted state insurance rules to apply to insured MEWAs, thus eliminating the area of the most abuse. Achieving ERISA status for the abusive plans makes little difference anymore.  More importantly, though, ERISA SEction 514(b)(6) gives the DOL the authority to establish rules by which it would recognize (or not recognize) a non-insured MEWA  as a single plan under ERISA 3(1). Though the lead plan sponsor may be an employer under such an approach, there is nothing within the regs recognizing it as a single plan.
 
MEPs, however, are much different. There are regulations which establish a specific set of rules authorizing the adoption of a single employee pension benefit plan by multiple, unrelated employers under certain circumstances.  There are no such specific rules for adopting a welfare plan for multiple employers.  In the absence of such specific rules, MEWA promoters have to resort to cobbling together  the general rules of ERISA to justify such an arrangement.  It appears that, at least from one of the Advisory Opinions, the DOL may well treat any group of multiple employers which attempt to adopt a single welfare plan as an association which must meet the "employer" rules.  This seems well within the DOL's authority to do (at least they have the authority to establish regulations on this point) particularly as an anti-abuse rule.
 
It seems that, after working it through a bit,  the DOL's approach to multiple employer arrangements are generally well founded, particularly as they apply to MEWAs.  Under the analysis above, an Open MEP can and should be accorded much different treatment than MEWas, and can be adopted by employers acting on their own behalf. An association, however,  may need to continue to comply with the "commonality" rules if they are not operating under an Open MEP.  
 
As an aside, something to note: ERISA Section 210 and Code Section 413(c) do not apply to 403(b) plans, which then may mean that it would  require an association of sorts to be able to adopt a single, multiple employer 403(b) plan. It would not, otherwise, be an ERISA MEP (a MEP under ERISA must fall under Code Section 413(c)).   It may be that the plan will need to be organized around the concept of employers actively governing the plan, belong to a bona fide association, or have employment bonds beyond the plan itself, unless the DOL issues other guidance.  
 
 
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Testing of the MEP Waters

by Robert Toth
Posted on June 23, 2011

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.  

 

 

Any discussion on any tax issue addressed in this blog (including any attachments or links) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any transaction or tax-related position addressed therein. Further, nothing contained herein is intended to provide legal advice, nor to create an attorney client relationship with any party.   

 

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