On July 31, 2019, the DOL issued final rules expanding access to multiple employer plans (MEPs). As background, in October 2018, the DOL issued proposed rules that redefined the term “employer” under ERISA to allow certain employer groups and associations or PEOs to sponsor defined contribution retirement plans. That proposed rule was the DOL’s response to an executive order directing them to propose rules that would make it easier for small employers to band together to offer retirement plans. (We discussed the proposed rules in the October 30, 2018 edition of Compliance Corner, found here.)
The final rules do not vary much from the proposed rules. “Bona fide groups or associations of employers” and “bona fide professional employer organizations” can establish MEPs. Working owners with no employees can also participate in the MEPs under certain circumstances. The final rules still 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.
One difference between the proposed rules and the final rules is that the final rules do not contain a safe harbor for “certified PEOs.” Instead, a PEO must show that they bear responsibility for employees’ wages, tax withholding and reporting, job offer and terminations, and employee benefits. Additionally, the final rules require that PEOs continue in their obligations as plan sponsor to participants even after the PEO ends its relationship with the client-employer.
The IRS simultaneously published a Request for Information (ROI) on “Open MEPs.” Open MEPs are MEPs that would potentially cover employers that have no relationship. The ROI also asks for comments on “corporate MEPs,” which would cover related employers that are not related enough to be considered a controlled group. This would allow even more employers the chance to band together to provide retirement plans. Comments must be submitted by October 29, 2019. Interestingly, Congress is also considering providing open MEPs through legislation.
The final rule will go into effect on September 30, 2019. Any plan sponsor that is considering joining a MEP should work with their adviser.
Final Rule »
DOL News Release »
Fact Sheet »
Request for Comment on Open MEPs »