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.