On Oct. 23, 2018, the DOL released a proposed rule that expands access to multiple employer plans (MEPs). As background, in Aug. 2018 Pres. Trump issued an executive order directing the DOL to propose rules that would make it easier for small employers to band together to offer retirement plans. (We discussed this executive order in the Sept. 5, 2018 edition of Compliance Corner.) This proposed rule does that by redefining the term “employer” under ERISA to allow certain employer groups and associations or PEOs to sponsor defined contribution retirement plans.
Specifically, if the group/association or PEO met the requirements laid out in the proposed rule, then ERISA would apply to the multiple employer plan on the plan level. This means that the individual employers would not be responsible for complying with the different ERISA requirements, such as the Form 5500 filing requirement and the fidelity bonding requirement. Instead, the plan would be responsible for meeting the bulk of ERISA’s requirements.
In order to meet the proposed rules’ requirements to offer a MEP, a group or association of employers has to meet multiple requirements. Interestingly, those requirements are quite similar to the requirements laid out in the new rules for association health plans. (See our article in the June 26, 2018 edition of Compliance Corner.) The proposed rules require the following for a MEP that wants to form under the new rules:
- There must be a formal organizational structure that’s controlled by its employer members with at least one substantial business purpose outside of providing a retirement plan.
- The members of the group or association must share a commonality of interest, which would be met if the members are in the same trade, industry, line of business or profession, OR if the members are in the same state or metropolitan area.
- The members must employ at least one participant and participation must only be offered to employees and former employees.
- The group or association must not be a financial services company such as a bank, trust company, insurance issuer or broker-dealer.
PEOs will also be able to avail themselves of this rule if they meet certain requirements. Specifically, PEOs could sponsor a MEP if they perform “substantial employment functions” for their members. The rule lists nine different criteria for determining if a PEO performs substantial employment functions. The DOL will automatically recognize Certified PEOs (as defined by the IRS) and any PEO that meets five of the nine criteria as performing substantial employment functions for the employer members.
The rules also clarify when working owners can participate in these MEPs. Working owners, such as sole proprietors and other self-employed individuals, can participate as long as they provide enough services to their company to have wages at least equal to the cost of group health plan coverage offered by the group or association.
The DOL will accept comments on the proposed rules through Dec. 24, 2018.
While this rule is intended to offer small employers more and less burdensome options for offering retirement plans to their employees, any size of employer may join one of these groups or PEOs. For more information on how this proposed rule might affect your company’s benefit options, please contact your advisor.
Proposed Rule »