Multiple Employer Plans

There is in the SECURE Act a volume of small, odd, technical  details which need to which attention needs to be paid. This statute is a technocrat’s dream. So much in there actually raises fundamental  infrastructure issues of the sort we rarely see. We are all familiar with the 80/20 rule, with the caution of not letting perfection become the enemy of good. Well, these “oddities” raise the exact inverse of the 80/20 rule: through my long years in retirement product development,  the highest risk of failure arise from the lack of understanding of how the smallest of details can tank a multi-million dollar project. The “80” may sound good conceptually and structurally, but it is in the implementation of the detail in the 20 which will determine the success of the project.

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The one topic which seems to be on the forefront of a significant number of professionals, however, is the attempt to make sense of the new MEP and PEP rules. This is especially so because they follow so closely on the Association Retirement Plan regs finalized by the DOL and the “Unified Plan (“bad apple”) rule proposed by the IRS.  These commentators seem to be taking are common misstep, however:  it seems like (with rare exception) that each of these analyses are missing the assessment of the use of the “Group of Plans,”or “GoP”, in relation to MEPs and PEPs.
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“Aggregating” plans has now taken center stage with the passage of the SECURE Act. We now often find ourselves a bit muddled by the new array of terms with which we now need to deal.  Keep this as a handy glossary to guide when you find yourself caught in the middle of a conversation about “Multiple Employer Plans:”
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DOL’s new Field assistance Bulletin, 2019-01 is designed to correct common MEP Form 5500 filing issues. The most telling stories about this FAB is that (1) it establishes the data  groundwork that both the DOL and the IRS need to determine what requirements will need to be imposed when RESA and SECURE (or their successors) eventually pass; and (2) for those who argued that this data is somehow an unwarranted imposition of an administrative burden on MEP operations need to be prepared, I think, for a substantial new set of regulations over time designed so that the agencies have sufficient information to fulfill their mandate.
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The proposed reg is welcome as a purely technical and structural matter. But the relief may be mostly illusory. The “bad apple” problem has always sounded worse than it is and may have been able to be  fixed by a simple adjustment to the Maximum penalty Amount rules under EPCRS, and to the rules as to who should be responsible for that penalty.

But the IRS proposal only really addresses small part of what actually happens when a plan is forcibly spun off, which may take a significant regulatory effort-especially if RESA/SECURE become law.
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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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