July 09, 2019
On July 3, 2019, the IRS proposed rules that modify how employer qualification failures are treated if the employer provides retirement benefits through a multiple employer plan (MEP). As background, a MEP is a defined contribution plan in which multiple employers participate. For IRC and ERISA purposes, MEPs are considered a single plan. In the previous IRS rules on MEPs, there was a “unified plan rule” that meant that the whole MEP could be disqualified if one participating employer failed to satisfy a plan qualification requirement. This was known as the “one-bad-apple rule.”
This proposed rule does away with the one-bad-apple rule if certain conditions are met. This change comes in response to President Trump’s executive order on Strengthening Retirement Security in America. You can find more information on that executive order in our Compliance Corner article here.
Under the proposed rule, MEPs can avoid the disqualification of one participating employer causing the disqualification of the entire plan if the following requirements are met:
This proposed rule will be welcome news to MEP sponsors. The rule would become effective on or after the date the final rule is published in the federal register. The IRS will accept comments on the rule until October 1, 2019. MEP sponsors and their participating employers should consider the requirements set in place by this rule.
Proposed Rule on Multiple Employer Plans »