Multiple Employer Plans

For all the noisy support being generated for the changes to Multiple Employer Plan arrangements in RESA and SECURE, little notice is being given to the provisions which are likely to have a much more meaningful impact on the ability for smaller plans to obtain the advantages of scale: the rules permitting the “Combined Annual Report for Groups of Plans.”
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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. 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 entitled 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.
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The key to the regulation is the DOL’s extensive request for comments. It has identified are two major, unresolved issues for comment. The first is what should constitute a “corporate MEP.” The second The seconds the pooled employer plan, the classic MEP of unrelated employers. The DOL proposes drawing this line at the “substantial employment function.”
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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.
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The DOL’s proposed regulation permitting Association Health Plans which cover unrelated employers is likely to have a significant impact on the market’s ability to offer Multiple Employer retirement plans to unrelated employers. This is because the regulation permits AHPs through the regulatory modification of ERISA’s definition of the term “employer” under Section 3(5).
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The DOL’s advisory Opinion on MEPs in 2012 was specifically premised on the DOL’s interpretation of the definition of “employer,” for health plan (MEWA) purposes. The DOL ‘s position was that it had no authority to redefine their historical definition of employer for MEWA purposes merely for retirement plan purposes, that they were bound by the statute to apply the same “employer” definition to both health plans and retirement plans. Does this mean that the new proposed definition of “employer” will, necessarily, by operation of statute, be expanded for retirement plan purposes as well?
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This legislation could fundamentally change the MEP landscape, and even lessen the contention over state run MEPs. It would do this by opening the market for the advantageously pooling of the resources of small employers which would have otherwise been reserved to the State programs. It also could minimize any need for new federal MEP legislation, and promote models which are a lot less risky than the MEP.
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The complex nature of handling 403(b) plans-and, in particular, the unique manner in which the fiduciary rules apply to them-make these plans uniquely suited to customized fiduciary services. It is well beyond the skill set of many 501(c)(3) organizations to make sense of their often complicated 403(b) programs, and to put them into some kind of sensical order. This must be done all the while applying a number of rules intended for the 401(k) market (with their centralized recordkeeping systems) in a plan which may have significant assets held by multiple vendors under a variety of contracts with differing terms.
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