“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 (hopefully) handy glossary to guide when you find yourself caught in the middle of a conversation about “Multiple Employer Plans, and need to quickly summarize the different MEP types:

1.  MEP: This is your plain vanilla, traditional “Multiple Employer Plan.” Yes, they will still exist after all is said and done, and if you have a MEP that meets all of the pre-SECURE Act rules regarding “commonality and control” (including the regs which also describe PEO MEPs (see # 6) and Association MEPs (see #5)), you don’t need to do anything-EXCEPT that the (i) plan terms must provide for a simplified “One Bad Apple” (or unified plan rule, see #8) and (ii) there are new Form 5500 reporting requirements.

2.  PEP:  A PEP is a “Pooled Employer Plan.” Simply put, it’s a still MEP, (I guess you should call it a PEP MEP), but one that doesn’t fulfill the “commonality” requirement under #1.  Instead, the PEP will qualify as a MEP as long as it has something called a “Pooled Plan Provider” (a PPP, see #3). Yes, the MEP that’s a PEP will also (i) have to have a simplified “One Bad Apple” (or unified plan rule, see #8) rule in its terms, and (ii) have special Form 5500 reporting requirements.

PS: IRAs can be PEP MEP, too.

3.  PPP: A PPP is the “Pooled Plan Provider” that has to be hired by the PEP in order to qualify as a MEP. A PPP is a “person” (it really can be anybody: TPA, and insurance company, a mutual fund management firm, a broker, or even just an individual!) that is

  • “a” named fiduciary (which simply means it is named as a fiduciary in the plan documents) which accepts full responsibility, in writing, for the plan meeting the terms of ERISA and the Code;
  • registers with the DOL as such, before becoming a PPP;
  • the participating employer agrees to provide to the PPP the info needed to properly operate the plan; and
  • the PPP makes sure all parties handling plan assets are bonded.

A traditional MEP (see #1) doesn’t qualify as a PEP. And until the DOL and IRS issue guidance on how you do a PEP, you can operate under a good faith basis after the effective date.

PS: Each Participating employer in the PEP is still considered a plan sponsor.

4.  Group of Plans:  A Group of Plans, as of yet, has no acronym (though I guess we can call them GOPs). It is neither a MEP nor a PEP MEP.  It’s just a bunch of unrelated employers who can file a “combined” Form 5500 if they have the same:

  • Trustee,
  • Plan administrator,
  • Plan year, and
  • Investments or investment options.

The idea of a GOP is that if you don’t meet the MEP rules under #1, and you have no interest in joining a PEP under #2 by using a PPP under #3, you can still get economies of scale by entering into common contractual/ fiduciary arrangements with unrelated employers- by filing a single 5500 in the same way a MEP or PEP MEP can. This option may prove more valuable than a MEP or PEP.

5. ARP: This is an acronym for the “Association Retirement Plan.” This term was coined by the DOL’s new regulation on MEPs. All it does is refer to the traditional MEPs (see #1), under which the DOL somewhat expanded the definition of what constitutes an “association” (and therefore has “commonality”). They still exist after the SECURE Act.

6. PEO MEP:  The “bona fide Professional Employer Organization” was permitted by the new DOL MEP reg to sponsor a traditional MEP (see #1) as long as it meets certain criteria. These still exist after the SECURE Act, but a PEO which questions whether they actually meet the DOL regs’ rules may want to consider operating as a PEP MEP instead.

7. Corporate MEP:  This is another new MEP term coined by the DOL in its new reg, and which still exists after the SECURE Act. It simply refers to those plans which had once covered all the members of a controlled group, and the controlled group became “uncontrolled”(my term!) by a change in ownership;  or refers  to those closely associated groups (such as affiliated service groups) which are covered by the same plan.  The DOL recognizes that these may or may not meet the ARP rules (see #5), and typically not the PEO MEP rules (see #6), but something needs to be done about them. They have asked for comments on what to do with them.  A PEP (see #2) may work in these circumstances.

8.  Unified Plan Rule, or “One Bad Apple Rule”:This also has no acronym, but is worth putting in this glossary. The IRS put out extensive rules which would relieve MEP participating employers of the fear of on bad acting employer from “disqualifying” the plan for all the other participating employers. The IRS coined the term “unified plan rule,” I assume because “One Bad Apple” sounds goofy in a reg. In any event, it was a complex set of rules which were proposed by the IRS. SECURE completely gutted that proposal, simply saying that to qualify for this relief, the plan must merely provide for a process to disgorge the “bad apple” from the plan.

9.  Open MEPs®. Prior to the Secure Act, this term referred to at least two different things: either a MEP of unrelated employers, or a MEP that was treated as a single plan under the Tax Code, but also as multiple plans under ERISA. Because a plan of unrelated employers will now be technically a “PEP,” and given that the Open MEP term is, after all, a registered trademark, I would expect the term PEP to supplant it’s use except by its owners.

A caveat: this Glossary is highly simplified, and is designed to lay out the major concepts of these programs in an understandable form. Each rule described above has a number of important details which need to be followed which are not discussed here.

The SECURE Act will make substantial and highly technical changes to some very specific elements of retirement plan laws, many to which we have been putting a good deal of attention (and written about here) throughout the years-like distribution of 403(b) custodial accounts; aggregating 5500s of unrelated plans; MEPs (see the Multiple Employer Plans Topics Categories in this site’s “Topics” sidebar); and the fiduciary safe harbor for annuity purchases. Before we try wrap our heads around the details of all of these changes, I thought it would be helpful to list-in chronological order-the effective dates for these changes to help in prioritizing what to pay attention to first. With one exception noted in bold below, the section references are to the SECURE Act which are picked up in “Division O” of the legislation. Note that some of these effective date provisions have certain caveats and conditions, so I recommend you look up the relevant date that interests you before making any determinative statement about that date! 

Effective for years beginning before, on, or after the date of the enactment

Sec. 111. Clarification of retirement income account rules relating to church controlled organizations.

Taxable years beginning after December 31, 2008.

Sec. 110. Treatment of custodial accounts on termination of section 403(b) plans.

Plan years beginning after December 31, 2013

Sec. 205. Modification of nondiscrimination rules to protect older, longer service Participants. (this effective date applies if elected by sponsor).

2014 Calendar Year?

Sec. 401. Modification of required distribution rules for designated beneficiaries.(Effective date is the “first calendar year” to which the new 10 year rule applies, which includes any past beneficiaries who are currently subject to the old 5 year rule).

Plan years begining after December 31, 2015.

Portion of Sec. 116 which provides past relief for plans which had excluded difficulty of care payments as compensation for determining the 415 limit.

Plan years ending after December 31, 2017.

Sec. 115. Special rules for minimum funding standards for community newspaper plans.

Distributions made after December 31, 2018

Sec. 302. Expansion of section 529 plans.

Date of Enactment

Sec. 108. Qualified employer plans prohibited from making loans through credit cards and other similar arrangements.

Sec. 116. Treating excluded difficulty of care payments as compensation for determining retirement contribution limitations (for contributions after date of enactment, except see relief provided to 2015, above).

Sec. 204. Fiduciary safe harbor for selection of lifetime income provider. (technically, there is no effective date, but applies as of the “date of selection” of the annuity, which can only meet these requirements once the Act is enacted….)

Sec. 205. Modification of nondiscrimination rules to protect older, longer service Participants (if earlier effective date not elected).

Plan years beginning after December 31, 2019.

Sec. 102. Increase in 10 percent cap for automatic enrollment safe harbor after 1st plan year.

Sec. 103. Rules relating to election of safe harbor 401(k) status.

Sec. 202(d, ). Clarification relating to numbering of returns for deferred Compensation plans (see separate effective date for 202a),(b) and (c).

Sec 104 of Division M—Bipartisan American Miners (allowing in-service withdrawals from governmental 457(b) plans at age 59 1/2)

Taxable years beginning after December 31, 2019.

Sec. 104. Increase in credit limitation for small employer pension plan startupcosts.

Sec. 105. Small employer automatic enrollment credit.

Sec. 106. Certain taxable non-tuition fellowship and stipend payments treated as compensation for IRA purposes.

Sec. 107. Repeal of maximum age for traditional IRA contributions.

Sec. 109. Portability of lifetime income options.

Sec. 113. Penalty-free withdrawals from retirement plans for individuals in caseof birth of child or adoption.

Sec. 114. Increase in age for required beginning date for mandatory distributions (for distributions required to be made after December 31, 2019, with respect to individuals who attain age 701⁄2 after such date).

Sec. 201. Plan adopted by filing due date for year may be treated as in effect as of close of year (for plans adopted after 12/31/2019).

Sec. 206. Modification of PBGC premiums for CSEC plans.

Sec. 301. Benefits provided to volunteer firefighters and emergency medical responders.

Calendar year after December 31, 2019

Sec. 402. Increase in penalty for failure to file (applies to return due dates after this date).

Sec. 403. Increased penalties for failure to file retirement plan returns (this includes the increased IRS Form 5500 non-filer penalty, applies to returns and notice due dates after this date).

Plan years beginning after December 31, 2020.

Sec. 101. Multiple employer plans; pooled employer plans.

Sec. 112. Qualified cash or deferred arrangements must allow long-term employees working more than 500 but less than 1,000 hours per year to participate. (except that, for purposes of section 401(k)(2)(D)(ii)-which was added by the Act- the  12-month periods beginning before January 1, 2021, shall not be taken into account).

 Plan years beginning after December 31, 2021.

Sec. 202(a), (b) and (c). Combined annual report for group of plans (except that the modifications to the Form 5500 must implemented by the IRS and DOL  not later than January 1, 2022).

 Last day of the first plan year beginning on or after January 1, 2022, or such later date as the Secretary of the Treasury may prescribe.

Sec. 601. Provisions relating to plan amendments.

More than 12 months after the latest of the issuance by the Secretary of Labor of interim final rules,  the model disclosure, and the assumptions upon which notices are based.

Sec. 203. Disclosure regarding lifetime income. 

Long-time readers may recognize this as a version of the Mother’s Day blog I would periodically post in honor of Mom. It has been nearly two years since her passing, and I have not posted it since. But it seems that sharing these notions now, during Thanksgiving week, makes some sense. Hopefully, it may help remind us of things we often let pass, and give us some measure of perspective around what we do and for what we have to be thankful.


On the rare morning when the breeze would blow in from the east, from the river, the orange dust from the prior night’s firings of the open hearth furnaces at Great Lakes Steel would settle onto the cars parked in the street. My Mom’s father worked there; my Dad’s father was a furnace brick mason at Detroit Edison; my father a tool and die maker at Ford’s Rouge Plant, not far down the road. Yes, I am a native Detroiter.

ERISA wonks such as ourselves tend to get lost in the press of details which seem to flow non-stop from our regulators and legislators in D.C. It is this background that reminds me that it is sometimes helpful to step back and see the personal impact of the things we do, even on the plant floor.

A few years back, a good friend of mine who ran the retirement plan operations of a large insurance company asked me to speak about ERISA to a meeting of his administrative processing staff. At the time they were still struggling with some of the more difficult administrative processes related to the QJSA and QPSA rules. Here’s what I told them:

My father died at the Rouge Plant in 1970, after 20 years with the company. Back then, the normal form of benefit under a defined benefit plan was a single life annuity, covering the life of only the employee. There was no such thing yet as a qualified joint and survivor annuity or a qualified pre-retirement survivor’s annuity. This meant that my father’s pension died with him. My mother was the typical stay-at-home mother of the period who was depending on that pension benefit for the future but was left with nothing. With my father’s wages topping at $13,000 annually and five kids at home, there was also little chance to accumulate savings.

The Retirement Equity Act of 1984 (a copy of which I still keep in my office) was designed to change all of that. By implementing the requirement of a spousal survivor annuity, a whole class of non-working spouses received protection which was desperately needed. So in that speech to my friend’s administrative staff, I asked them to take a broader view-if just for a moment- of the important task they were being asked to implement. It was valuable social policy with real, human effect which they were responsible for pulling off, and they should take a measure of pride in the work they were doing.

My point is that there are very important, and very personal, consequences often hidden in the day to day “grunge” of administering what often seems to be nonsensical rules.

It is in this spirit which we do give thanks for our blessings, including the opportunity to be in a profession where the law really does matter to people’s lives and can make a difference.



Lifetime Income from Defined Contribution continues to gain traction, which means that those tasked with administering these programs really need to start paying attention to the details of how its done. This also means understanding how the Joint & Survivor Annuity rules-rules which many have spent a career avoiding in 401(k) plans- operate. This then means understanding how Revenue Ruling 2012-03 actually works.

Revenue Ruling 2012-3 was issued by Treasury as part of a package of rulings designed to enhance the availability of lifetime income from DC plans. This package included the proposed QLAC regulations (whose terms were coordinated with the Rev Rul) and another Rev Rul which addressed the issue of partial annuitization from DB plans.

2012-3 is an actuary’s dream, with specific, almost painful details outlining the machinations of how the J&S rules apply when making lifetime income payments from a plan which otherwise is designed to avoid this issue. Remember that the J&S rules not only require that the payment from a retirement plan be made in the form of a 50% Joint and Survivor Annuity, but also requires a particular notice scheme before the payments begin. 401(k) (and more and more, 403(b)) plans are designed to meet the exception to these rules by providing lump sum benefits, with the spouse being the default named beneficiary. Lifetime income blows up this exception. So, now what do you do?

There’s a pile of issues which need to be addressed when making Lifetime Income arrangements under a DC plan, but four of the most basic concerns are addressed by 2012-3:

  1. The annuities are investments, not protected plan benefits.

The first key point that the Rev Rul makes is that choosing lifetime income under a 401(k) plan doesn’t need to be a matter of plan design, but should instead be designed as a matter of the participant making an investment choice. As a practical matter, this means that your plan document does not have to be amended to enable the payment of an annuity benefit (which would be a “protected benefit” under Code Section 411(d)(6)). The plan document language merely needs provide broad enough investment authority to enable the fiduciary to offer the purchase of an annuity contract as a plan investment for the participant (yes, if you really want guaranteed lifetime income, that guarantee still can only be provided under an annuity contract issued by a licensed insurance company).

2. The joint and survivor rules apply only to the elected annuity contract, not to the entire plan-or even to the entire account balance of the participant.

The Rev Rul makes I clear that, as long as individual accounts are being maintained, the exemption from the J&S rules for the rest of the plan -or the rest of the participant’s account-is not lost.

3. The J&S rules won’t apply until the “annuity starting date.”

This is really a big deal. The “annuity starting date” is a critical definition for lifetime income programs. The Revenue Rul defines when the annuity starting date occurs for the lifetime income payout, under which the entire notice and consent process is triggered. The Rev Rul took the position that the annuity starting date is effectively the date when the payout option is irrevocable. In most products, that will be the date the lifetime payments will begin, but it is possible for it to even be decades earlier.

4. Making the annuity the default method of payment under the plan won’t trigger the J&S rules if the participant can elect out of it before the annuity starting date.

The fact that the lifetime payout is the default option is not determinative of the “annuity starting date,” as long as the participant has the ability to choose another option before payments begin.

Getting re-acclimated to the J&S administration will be a challenge.

The long awaited remedial amendment period rules were released a few weeks ago, under Rev Proc 2019-39.  The IRS needed to issue regulatory guidance on how much time a plan sponsor had to amend its 403(b) plan because the Code Section which governs these sorts of changes for 401(k) plans -Section 401(b)-does not apply to 403(b) plans. Of the so many discreet elements of the differences between 401(k) and 403(b) that the drafters of the groundbreaking 2007 403(b) regulations overlooked, this was probably one of the most serious ones. It has taken the IRS a dozen or so years  to finally work out a sensible system by which to approach the problem which arises from the fact that a written plan document is required to obtain 403(b) treatment for a plan. For the 90 or so years prior prior to 2009, 403(b) plans never had a formal written plan document requirement.  I guess there is still an outstanding issue as to whether or not the IRS  has the authority to impose this requirement, given that its not listed in the statute of one of the requirements that give rise to 403(b) treatment of an annuity. Technically speaking, I think the plan document requirement actually has to act as a sort of non-dicrimination rule in order to have any statutory effect.

Nonetheless, we have a formal written plan document requirement, and now have a structure by which to timely amend these plans.

One of the most important rules which really hasn’t gotten a lot of press is the very new rule that any “discretionary” amendment must-as of January 1, 2020- be adopted by the end of the plan year in which the change to the plan’s operation was made (a “discretionary” amendment, by the way, is one which not required by law).This is actually a very significant change, and one which should not be overlooked. 403(b) plan documents have always had a great deal more flexibility than 401(k) plans in the way plan amendments operated. There really has been no rules at all which govern their timely adoption. As we have combed plan documents and operations in preparing them for the 2020 retestaments, we’ve been able to use this lack of time limits on plan amendments to fix some nagging document problems. Yes, there’s always the “form and operation” problem you have to deal with when your plan document has not fully reflected the 403(b) plan’s operational terms, but-generally, for a number of issues- as long as you had sufficient enough documentation to evidence its adoption and use, the lack of a drop dead date (and the availability of “paper clip rule”) by which we the plan had to be formally be amended gave us some confidence that a number of these flaws  may not have been fatal.

We have been expecting this rule, so it really is no big deal, and it is actually very useful in many ways. The issue, however, is the effective date. This new discretionary amendment rule is effective January 1, 2020. Yet the end of the remedial amendment Period is not until March 31, 2020. I  am hopeful that this does’t mean that any discretionary amendments which were necessary to “fix”plan document problems during the 2020 restatement process which are not adopted by January 1 will somehow be more cursed than those amendments made prior to that date.




Code Section 402(g)(7) seems to have a gift for certain 403(b) plan sponsors (that is, for “qualified organizations, being educational organizations, hospitals, home health service agencies, health and welfare service agencies, churches, or convention or association of churches): the annual elective deferral limit for participants in these plans with “15 years of service” with the qualified organization can be as much as $3,000 greater than the existing limit for everyone else, up to a lifetime maximum of $15,000.

When you are restating your 403(b) plan documents, and you come across this election, your first impression may well be “why not? What a great benefit for the more senior employees!”

You should, however, pause at that moment, and consider the details of what it takes to be able to support providing this benefit. It’s not what it seems to be, and it truly has become an “attractive nuisance.”

An attractive nuisance is a term used in personal injury law to describe a dangerous circumstance on one’s property–such as a deep pool or pond–which will be attractive to children. If the property owner has not taken precautions to prevent children from accessing that “nuisance ” that owner may be liable for any harm done to that child who then jumps in that pond and is hurt.

The 402(g)(7) “long service catchup” is of that character. At the very least, it’s a terrible trap for the unwary. It is a benefit which is virtually unsupportable except for those employers with sophisticated payroll systems which have also been programmed over an extended period of time to calculate and store the data needed to provide this benefit.

The devil, as in all else 403(b), is in the details:

  • 402(g)(7)(D) requires that the definition of “years of service” which is to be used in calculating the 15 year catchup is the “meaning given to such term by section 403(b).”
  • 403(b)(4) provides  the definition of years of service for 403(b) plans. It only has a passing similarity to the “years of service” used for vesting and participation under sections 410 or 411, or even under ERISA Title 1. One must count:
    • one year for each full year during which the individual was a full-time employee of the organization purchasing the annuity for him, AND
    • each fraction of a year for each full year during which such individual was a part-time employee of such organization and for each part of a year during which such individual was a full-time or part-time employee of such organization.
  • 1.403(b)–4(e) provides the special rules for computing the fractional “work periods” to be used in computing the 15 year catch-up (they are extensive, some 1435 words).
  • 1.403(b-2(b)(11) then provides the special rules for determining the participant’s “includible compensation,” which must be used to determine the 415 limitation on those long service contributions, which is different than the general compensation rules used elsewhere in the plan for all other purposes.

Why does this all matter? Because no employer that I’ve ever encountered actually collects and properly calculates both partial years of service and includible compensation for those periods, nor has the ability to do so (though I’ve little doubt there may be a handful of employers which do)-and I suspect the IRS has also found a lack of documentary support for these calculations in its reviews. And, yes, if you’ve adopted this rule, the Service will ask for this data on audit if you have elected the benefit.

Which is why you should pause before checking that box adopting the 15 year catch-up. If you do not have the data to establish the eligibility for the benefit, you will then suffer a CAP penalty on audit.

Our advice always is to be not misled: the long service catch-up can only be best described as an attractive nuisance. Just don’t do it.

I would also like to send a shout out to the Treasury and IRS’ staff who participated in the 2019 ABA Joint Fall Tax Meeting this past week. I do this not to curry favor, in the same way I do not seek to demean in my  technical critiques of their work over time. I left the meetings with the impression that we do need  pause to recognize the  work they do from time to time. It is complex and demanding, and they are incredibly good at it.  Balancing  competing (and very serious) policy and statutory concerns while drafting language which must also prove to be useful to sponsors, participants and vendors is no mean feat. They represent “good government” in an era where it seems that the notion of  public service is too often trampled upon. A tip of the hat to you all.




Minutiae. Thats what I try to explain those who continue to claim that 403(b) plans are “just another form of 401(k) plan;”  and is just what the drafters of the 2007 403(b) regulations did not wholly grasp when they tried to fundamentally reshape 403(b) plans to try to make them “just like” 401(k) plans. Its the small rule differences which make 403(b) plans so difficult to understand and handle on systems which are geared to administer 401(k) plans. It is those small differences upon which we really rely in trying to figure out solutions to the inevitable problems which arise when you actually try to run these plans.

The definition of “student” is just such a case in point. “Student ” status means nothing in the 401(k) world, but it is one of the few classes of employees  which can be excused by employers from the universal availability rule  of 403(b) plans. Student employees do not have to be given the opportunity its to make elective deferrals into the 403(b)-and given the often transient nature of student employment at colleges and university, this is a welcome exclusion.

But it is not everything it appears to be, and the details of this rule are often overlooked by  school plan administrators who are responsible for completing the plan documents. Code Section 403(b)(12((ii) limits the exclusion  to those “performing services described in section 3121(b)(10)” . This is the Student FICA Exemption, where any compensation earned by these employees is not considered “wages” for FICA purposes. These are effectively student employees earring compensation related to their field of study, but there is an extensive list of requirements which the IRS well describes. Effectively, for 403(b) purposes, you can exclude from deferrals those same students whose compensation is also excluded from the social security rules. There is  the added caveat that your exclusion of these students is subject to section 410(b)(4), which requires uniform treatment of that class-you can’t let some in and some not.  And finally, this is not an exclusion from from the non-discrimination rules for employer contributions, especially if your definition of compensation is W-2, not 3121….

Those organizations which do take advantage of the Student FICA Exclusion are often well versed in its use, but that knowledge may or may not spill over into those responsible for making plan document choices under the 403(b) plan. It is too easy sometimes to simply choose that exclusion without recognizing the details of that exclusion-especially when the employer is also choosing to exclude “students” (and not necessarily just those with the FICA exemption) from receiving any employer contributions, and may want to exclude all student employees from making elective deferrals.

The practical impact of this limited student employee exception is that employers do need to track most student employee hours, and need to keep them under the 1000 hour/work l less than 20 hours per week requirements if you wish to exclude them from the plan. And then you need to remember to apply the once in always in for these non-excludable student employees-which often comes into play when student s are pressed into service for either major projects or for overtime during summer employment. You also need to remember to elect separate treatment for FICA Exempt student employees than non-FICA Exempt student employees when completing the adoption agreement for the 2020 required 403(b) plan restatement.

Watch the Western Pension Benefits and Benefits Council webinar page for an upcoming presentation by Evan Giller and I, which will be sometime in the week  October 21(I think!) focusing just on this sort of significant minutiae.

Chris Carosa, Chief Contributing Editor of the Fiduciary News, consistently publishes valuable information related to implementation of the fiduciary’s obligations. Chris’s articles are insightful,  bringing a fresh angle to the often intractable fiduciary issues we or our clients daily face. However, I found that his August 27 article entitled “Did Business Roundtable Just Break a Fiduciary Oath?” deserves a response-especially since I was already in the midst of writing a blog on the Business Roundtable’s press release.

The Business Roundtable issued a press release  on August 19 signed by the CEOs of the largest companies in the U.S. outlining a “Statement on the Purpose of a Corporation .” In it, the CEOs outline a ” modern standard for corporate responsibility” or, as Jamie Dimon, CEO of JP Morgan Chase and the Chair of the Business Roundtable stated, “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term.”

So just why is it both Chris and I undertake to address this issue on retirement plan related sites?

Simply put, Chris passionately feels that these CEOs are abdicating their fiduciary responsibilities to their shareholders by investing corporate assets on the basis of “social responsibility.” In addition to the question of similar fiduciary standards which may apply to the ERISA context, he also raises the question whether it creates problems for investment advisers to recommend investing in these companies.

This really does fall squarely into the ESG discussions which have been raging recently, with the current administration being concerned about retirement plan fiduciaries engaging in shareholder activism based on “social responsibility.”

My take is much different than Chris. I not only believe that the Business Roundtable has it right, but it is a position that properly frames the issues for the ERISA  investment fiduciary: prudent  assessment of an investment must take into account a broader view than the narrow financial analysis of the books and records of the company, or of current market pricing. Particularly for ERISA fiduciaries, the investment standard is long-term, to provide retirement income. Any valid, long-term  analysis has to be able to take into account the social, political, market  and scientific trends which will inevitably affect the investment’s value. There is a point at which “social responsibility” and good business have a strong comity of interests, and the Business Roundtable recognizes that. My favorite example of this is the 2010 interpretive guidance related to climate change published by the SEC with the following statement:

This interpretive release is intended to remind companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents to be filed with us and provided to investors.

It is not only appropriate, but necessary, to understand that the plan’s investments do not operate in a vacuum, that they often will be internalizing the costs of the “non-business” markets in which they must operate.

The DOL, on the other hand, has taken an extraordinarily narrow view on an investment’s value and the lack of import of “social issues” on investment decisions at least since 1989.That year, the DOL took it upon itself, without the request of any party, to issue a warning letter (the now infamous “Polaroid Letter”) to the fiduciaries of the Polaroid Plan.  Polaroid was engaged in a proxy fight  over the takeover of the company. The Polaroid ESOP held a substantial percentage of the company, shares of which were largely allocated to the accounts of union members. The plan also provided for pass through voting rights to those participants. Participants voted overwhelming against the take-over, and against the tendering of the Plan’s shares. The DOL sternly reminded the fiduciaries that they could not honor the voting results of the participants if their vote resulted in an imprudent action.

The Polaroid matter is now known for the litigation which followed, of course, and for the issue of whether or not and under what circumstances should a plan document’s terms be disregarded. At the time, however, it was a much different issue that was contentious: the DOL made it clear that the impact on workers and communities of a hostile takeover of a company cannot be considered in making the fiduciary decision of valuing an offer on the investments. The fiduciaries must only look to the financial statements at the time of the deal, and extraneous facts cannot be considered.

I was in-house ERISA counsel at Kellogg company at the time, in Battle Creek, Michigan, and knew first hand of the economic issues of a Fortune 100 company in a small town in a rural region of Michigan. I also had a front row seat shortly thereafter at Lincoln Financial Group in Fort Wayne, Indiana, where I provided ERISA support in their corporate transactions. The success of these companies were closely tied to that of the workers and of the surrounding communities. Indeed, that was the time period of the brutal corporate takeovers engineered by firms the  likes of KKR (remember Kohlberg Kravis Roberts & Co.?) which would rely upon their own version of economic analysis, and then dismantle companies, sell off their pieces, often send them deep into debt, ultimately destroying those companies-and the communities in which they operated-for the benefit of a small number insiders. Though I’ve not done a review of the business  literature related to that period, I have little doubt that the destruction wrought by those firms on the “investments” they purchased will be demonstrably not in the long term best interests of these companies and those which invested in them.

This really does have current applicability in the current discussions on economically targeted investments, the so-called “ESG” rules.  Of course, making investment decisions based solely on social or political notions without regard to the “economics” is clearly imprudent. However, it is also prudent to include non-traditional factors in any “economic” analysis, including the value of those investments and their viability related to the communities (and the impact on its workforce)  and markets in which they operate.


It has now been a dozen years since the IRS issued Revenue Procedure 2007-71, which was written in response to the logistical difficulties which arose from the mammoth changes imposed by the 2007 changes to the 403(b) regulation. That regulation imposed substantially new responsibilities on 403(b) plan sponsors, including the employer’s need to track and be held accountable for all 403(b) contracts which had ever been issued under that 403(b) plan. Considering that some of these plans have been around since 1919 or so; that many of these plans have permitted a large number of vendors to peddle their individual contracts to their employees; and given that many of the vendors never had any legal relationship with the employers themselves; these regs created a very serious problem.

This problem was exacerbated by the DOL, which revoked its long-standing Form 5500 exemption for 403(b) plans following the new IRS regs. That exemption had  permitted ERISA 403(b) plans to merely file what was in effect a “registration statement” (as required by the Tax Code), and did not require an IQPA audit for those plans with 100 or more participants.

So then there were two pretty serious problems. The first was a basic compliance problem:  dealing with potentially generations of 403(b) legacy vendors with whom employers had no connection. The second was the Form 5500: how was a financial statement supposed to be put together when the employer never had a clue as to whether some of the contracts even existed, and then all of those past contracts would be counted toward the 100 participant level for audit purposes.

Rev Proc 2007-71 offered a great deal of relief, to which the DOL also (partially) acquiesced-though employers and professionals often seem to have forgotten about it today. Any contract issued before 2005 and to which no contributions were received after December 31, 2004, could be completely ignored for 403(b) compliance purposes. Any contract issued between December 31, 2004 and before January 1, 2009 could also be excluded by for tax compliance purposes, as long as no contributions were received into that contract after December 31, 2008, and the employer made a good faith effort to establish a connection with that vendor.

The DOL agreed to apply that same rule to its Form 5500, including agreeing to exclude those now “exempted” contracts from the participant count for the IQPA audit purposes. The exception: the DOL has stated that those contracts are still subject to ERISA; the exemption only extends to the ERISA reporting requirements. This differs from the IRS approach, which exempts those contracts for all 403(b) tax compliance purposes.

The value of this  Rev Proc endures; and is particularly helpful when plans restate their 403(b) plan docs and need to do things like name their vendors;  have Information Sharing Agreements; and try to make plan redesign decisions.

I encourage all those who have forgotten about this Rev Proc to pull it out: it may solve many of your plan problems.

The question for the IRS now, as one 403(b) expert raised with me, is whether there really is any value in maintaining the different treatment  between the pre-2005 legacy contracts and the 2005-2009 legacy contracts, and whether those 2005-2009 contracts should also enjoy that same broad exemption without any requirement to prove the “good faith effort” of over a decade ago.  No funds have gone into these contracts for well past any Tax or ERISA statute of imitation (except, of course for outright fraud), and there may not even be any sponsor staff around anymore which could attest to what “good faith efforts” were undertaken. It would simplify tax administration, and permit plans to no longer waste any time in dealing with these legacy vendors which have no impact on the plan today.



If you talk to anyone who is working on pension legislation, they all will tell you that the provisions of RESA and the SECURE Act are as sure a thing as there is in DC; that their passage is not a matter of “if” but it’s just a matter of “when.” MEPs and “Group” arrangements (which permits unrelated employers on the same platform to file a consolidated 5500)  are critical pieces of that legislation. It is pretty clear that that these will soon become a standard part of our regulatory framework.

However, as I have mentioned in previous blogs, MEPs are hard to do, and Group arrangements have their own detailed challenges which will need to be addressed by service providers. Achieving scale in the small plan marketplace takes a healthy and specialized skill set.

It’s not just going to be challenging for benefit professionals: the IRS the DOL are also going to have a number of challenges in regulating them (see, as just one example, my blog on the IRS 403(b) MEP issues).  The promise of the advantages of scale offered by these new arrangements may be valuable, but  it involves the regulators translating rules, procedures, investigations and audits generally applicable on an individual plan into some sort of combined plan basis as a normal part of its activities.  I suspect this will call for a number of new regulatory protocols.

Which explains in large part  the DOL’s new Field assistance Bulletin, 2019-01. MEP sponsors have been required since the 2014 plan year to report certain information on all of their participating plans on the MEP’s Form 5500.This includes

  • the name of each participating employer,
  • each participating employer’s EIN; and
  • a good faith estimate of each participating employer’s percentage of total contributions to the MEP for the year.

Employers with account balances in the plan would have to be listed even if they had no contributions for the year. The attachment to the Form 5500 has to be labelled “Multiple Employer Plan Participating Employer Information.”

The DOL now reports that it surveyed 386 MEPs for the 2016 plan year and found that 101 of them were “non-compliant” with the MEP reporting requirements. Typical violations included replacing employer names with abbreviations or numbers (such as “Client 1”);  reporting only the last 4 digits of the EIN;  providing no information, stating instead that “information to be provided upon request;” or  incorrectly identifying the PEO as the only participating employer.

The new FAB is designed to address these reporting issues, and the relief is generous one: anyone failing to properly report in prior years will have a pass, as long as they properly report the MEP data on the 2018 Form 5500. Given that the deadline is now upon us, the DOL will grant a special extension of time to file a MEP’s 5500 until October 15, 2019- without the filling of a Form 5558. If a plan has already incorrectly filed for the 2018 plan year, it may file an amended return by October 15. There is a catch: this relief is dependent upon the MEP sponsor providing the missing data from past years at the DOL’s request.

The most telling stories about this FAB are 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.

MEPs and Group arrangements are not “solving” for regulatory exposure. They are “solving” for fiduciary and administrative expertise, which is typically unavailable to small sponsors, along with manageable audit costs and well priced (and availability of ) investments.