This link is to the TAG Resources’ comment to the proposed MEP regulation which was filed with the DOL last week.

The comment letter addresses the DOL’s main concern in initially prohibiting non-PEO commercial enterprises from becoming MEP sponsors. The Department is concerned that allowing any commercial enterprise to sponsor a MEP  would turn ERISA into a purely “commercial” statute; that without the sort of employment sort of relationships that PEOs brings the table, ERISA is reduced from providing employment-based protections to merely a sort of “commercial insurance” set of rules.  The Department referred to the Association Health Plan (AHP) regulations to make that point. The Department wants the MEP sponsor to perform a “substantial employment function” to preserve ERISA’s fundamental employment-based purpose, and does not see how that exists in commercial practice. This is why, by the way, the DOL virtually pleaded for comments, to gather more information this point.

What we pointed out in that comment letter that this concern is really alleviated in the retirement plan market by three different circumstances:

  1. Unlike the AHP sponsor, the MEP sponsor itself is, after all, still a retirement plan Sponsor, and is  subject to the MEP service crediting rules for participation, vesting and benefit accrual (under ERISA Sections 202,  203 and 204-which AHPs, by the way, are not). This means that the Sponsor’s  own employees are affected by the adoption of the MEP. The MEP sponsors may not have to cover their employees by the MEP, but they sure have to count  and credit hours for its own employees (and those who work for participating sponsors) under the MEP. This becomes important if its employees go to work for a participating employer, or an employee of a participating employer goes to work for a MEP sponsor.  Consider the practical  impact on this should a large financial service company adopt a MEP.
  2. Ask any employer who has gone through a DOL audit or investigation: the Department views  maintaining a plan as a very serious employment based responsibility. Think of the employment related questions a sponsor needs to answer in an audit. Then just read the plan document, and see all of the employment related involvement which is required of  the named fiduciary, the plan sponsor, the plan administrator, and all of the non-fiduciary tasks which must be completed to make a plan work. Just think of the employment related issues that arise in the completion of the compliance side of an audit. Our point is that maintaining the plan is, in itself, a “substantial employment function” which the DOL says needs to be maintained in order to create that employment relationship necessary to act on behalf of the employer. Maintaining a plan on behalf of another is actually a heavy lift.
  3. Finally, the DOL made much about the mere “commercial” relationships that non-PEOs  bring into play, which somehow make it less tenable for them to perform the MEP sponsor task. That line of thinking overlooks the fact that PEOs are themselves commercial entities, and that they are looking after their own pecuniary interests-not the participating employers-when they sponsor a MEP, just like every other business. No, the real concern should be, and always has been, whether the pecuniary interest of the fiduciary overwhelms (and becomes primary over) the interests of the plan and the participants in its dealings with the plan. However, the operation of the prohibited transaction rules prevent this from being so. So, for example, a large financial service company which sells investment platforms is going to find it very difficult to make MEP sponsorship profitable, as the prohibited transaction rules will severely limit its ability to profitably make its platform available in the MEP it sponsors.

For all of these reasons, any company- whether or not it is a large financial service company or a smaller service provider-who can meet all of the MEP sponsor compliance rules should be permitted to sponsor a MEP, and the marketplace would be better for it. And ERISA would maintain its validity as a strong, employment based set of laws.