There has been increasing interest in the market to put together Multiple Employer Plans for 403(b) plans, and with good reasons. Tax exempt entities are really well suited to the sorts of economies of scale that a MEP can bring, and they often organize well around common associations.
But a 403(b) MEP is really complicated when you get down to it because-like anything 403(b), it seems-of the devil that exists in the details. For example, besides having to deal with the DOL 2012 Advisory Opinion on all MEPs; and the fact that the Tax Code Section governing 401(a) MEPS does not apply to 403(b) plans (which means you can never really have a 403(b) MEP for tax purposes); and that the ERISA Section governing all ERISA MEPs (including 403(b) MEPs) requires compliance with that Tax Code Section which doesn’t cover 403(b) MEPS; you still have to deal with the complications of dealing with those legacy contracts of the various participating employers in the MEP. Then there is the issue of dealing with those combination of ERISA and non-ERISA 403(b) plans commonly sponsored by a 403(b)participating employer. These require use of traditional state law agency rules to make them work.
Yes, this is all manageable if you can have a MEP in the first place. The point here is that there are a lot of moving pieces in a 403(b) MEP that you don’t have to deal with in a 401(a) MEP. Using the aggregation model (see, for example, Section 202 of the recently introduced Retirement Enhancement and Savings Act of 2018 (“RESA”) which describes this model well) instead of the MEP -which many school districts actually do and call them MEPS- is so often more attractive.
What makes it all the more challenging is that you are dealing with the DOL’s regulatory processes which are geared to MEPs, while also dealing (on the same arrangement) with IRS regulatory processes which deal with each participating employer in a MEP as a single employer plan. The impact on this really falls on the IRS. The Form 5500 epitomizes the problem.
It starts with Form 5500 Section 1 which requires that you identify the plan as a MEP or a single employer plan. For ERISA purposes, the answer is MEP, and you must check the box. However, for Tax Code purposes, it is not a MEP-do you also check the single employer box?
What flows from that may cause the IRS heartburn. The financial statements are driven by ERISA’s rules and not the Code’s, though the IRS relies upon the DOL information when performing their own compliance activities. This means that such information is required to be reported on an aggregated MEP basis, not on a single employer basis. The only “single employer” data provided on the 5500 is each participating employer’s EIN, along with something called “percentage of contributions” for each of those employers. The compliance questions will also be answered on the consolidated MEP basis, not on the “single employer” basis, which may be of a concern to the IRS.
It’s also likely to become messy when the IRS is looking for an individual plan Form 5500 for the 403(b) plan under the EIN of the employer and with a plan number and doesn’t find one. This is exacerbated by the way a plan joins the MEP: it typically merges with the plan of the lead sponsor, but the merger is with a “plan” the IRS doesn’t recognize as a plan.
Let’s not forget about the Form 8955 SSA, either. This is a tax form, and it is required of all 403(b) plans subject to ERISA’s vesting standards. It is not an ERISA form. With each participating employer under a 403(b) MEP being considered an individual plan, a separate 8955-SSA has to be signed and filed on behalf of each participating employer. The IRS will have difficulty tying this back to the MEP’s Form 5500.
I truly doubt that the IRS’s systems are up to all of this and other process issues I haven’t mentioned, especially given the IRS’s budgetary strain. Even the provisions in RESA which will permit Open MEPS® won’t address these issues. It is likely to exacerbate them. So be prepared to deal with some bizarre regulatory twists in dealing the IRS when working with a 403(b) MEP, to manage through this lack of regulatory processes, or to seriously consider the aggregation model.