MEPs take center stage
Multiple employer plans have come a long way!
Recent legislation solidified the multiple employer plan foundation and created a brand new type of plan - the Pooled Employer Plan. These changes create new opportunities for companies to provide a great retirement benefit for their employees at a reasonable cost with less work and less liability. This legislation is likely to change the retirement plan landscape in significant ways - and BlueStar is ready to go! Take a look below at how we got here.
1974 - ERISA
The Employee Retirement Income Security Act (ERISA) goes into effect. This law required that plans be established and maintained by an “employer”. ERISA defines an “employer” as “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.”
ERISA created a lot of uncertainty about the circumstances employers could participate in a MEP because it did not explain what it meant to act “directly as an employer” or “indirectly in the interest of an employer, in relation to an employee benefit plan.” It also did not explain what is meant by “group or association of employers.”
2002 - Revenue Procedure 2002-21
With Revenue Procedure 2002-21, the IRS clarified that PEOs are not the common law employer of the worksite employees of their client companies. This meant that PEOs that were covering all of their worksite employees under a single employer plan were violating the exclusive benefits rule.
Revenue Procedure 2002-21 provided PEOs with a transition period to change their single employer plans into multiple employer plans with each worksite employer established as a separate adoption under their MEP.
2012 - Advisory Opinion 2012-04
The Department of Labor issues Advisory Opinion 2012-04 in response to a request from TAG Resources, LLC regarding the single plan status for a plan with 500 unrelated adopting employers.
The opinion definitively stated that to constitute a single ERISA plan, an “employer nexus” must exist. Plans comprised of unrelated employers should instead be considered a series of separate ERISA plans, one for each adopting employer. This opinion derailed, in part a booming industry of MEPs compromised of unrelated employers, modifying their status into what became known as “Open MEPs”.
2014 - CSEC Act Section 103(g)
As part of the Cooperative and Small Employer Charity Pension Flexibility Act, Congress added Section 103(g) to ERISA. This Act modified the Form 5500 annual report requirement for multiple employer plans to include a schedule of all participating employers and a good faith estimate of percentage of contributions for each.
August 2018 - Executive Order 13847
Executive Order 13847 directed the Department of Labor to find ways to make it easier for small and medium size businesses, including those with non-traditional employment structures, to participate in multiple employer plans.
July 2019 - Field Assistance Bulletin 2019-1
The DOL issues transition relief for not including MEP adopters on 5500. Many MEPs were not complying with the 2014 ERISA amendment requiring MEPs to include a schedule of participating employers. In this FAB, the DOL said it would not reject past 5500s that did not include the the list or seek civil penalties for failure to include participating employer information so long as 2018 From 5500 and future 5500s include the information.
July 2019 - Final Rule
The DOL released their “Final Regulation” spelling out when PEOs, associations of employers, and “bona fide” groups are permitted to sponsor a single defined contribution multiple employer plan (MEP). For a group or association of employers to be “bona fide”, it must:
- Have a formal organizational structure with a governing body and bylaws or other similar indications of formality
- Be controlled, in form and substance, by its employer members, who also must control the MEP
- Have at least one substantial business purpose unrelated to offering and providing employee benefits to its employer members, though the primary purpose of the association or group may be to offer and provide MEP coverage
- Limit plan participation to employees and former employees of employer members and their beneficiaries
- Have members with a commonality of interests, meaning the employers must be either (i) in the same trade industry, line of business, or profession or (ii) has a principal place of business within a region that does not exceed the boundaries of the same state or same metropolitan area (even if the metropolitan area includes more than one State)
- Ensure that each employer member acts directly as an employer for at least one employee participating in the MEP
For a PEO to be “bona fide” and act as an employer and qualify to sponsor a MEP, it must:
- Perform “substantial employment functions” on behalf of client employers
- Have substantial control over functions and activities of MEP, as a plan sponsor, plan administrator, and a named fiduciary
- Ensure that each client employer participating in the MEP has at least one employee who is a participant covered under the MEP
- Ensure that participation in the MEP is limited to current and former employees of the PEO and of client employers, as well as their beneficiaries
PEPs Are Here! December 2019 - SECURE Act
On December 19, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act Passed. The Act allows unrelated employers to pool their resources into a new type of multiple employer plan – a Pooled Employer Plan or PEP. This legislation was necessary because existing DOL guidance required an “employer nexus” for employers to participate in a single plan.
The SECURE Act also amended the IRS Code of 1986 to provide a procedure so that the one employer’s qualification issue does not disqualify the entire PEP or MEP. These provisions are effective for plan years beginning after 12/31/20.
