Changes in MEPs – Is This the Solution You’ve Been Looking For? by Ilene Ferenczy, Attorney, Ferenczy Benefits Law Center
Multiple Employer Plans (MEPs) are one way by which an employer may transfer some of its responsibilities as a plan sponsor to a professional retirement plan service provider. However, there are legal limitations, particularly those under Labor laws and regulations, that have made these plans more difficult to operate than many want them to be. There are some positions taken by the IRS that complicate MEPs, as well.
Recently, the Department of Labor (“DOL”) took one step towards making MEPs easier to use … and many practitioners and employers hope that this is just the first step in the MEP simplification process.
What is a MEP?
A MEP is a retirement plan covering the employees of more than one unrelated employer. MEPs are common when two companies that are related– but not sufficiently related to be considered one “employer” for retirement plan purposes – participate in a common plan. So, for example, there may be a parent company that sponsors a plan in which a 50% subsidiary participates. Because 50% ownership is not sufficient under retirement plan rules to treat these two companies like one, the plan is a multiple employer plan.
But MEPs can be used for completely unrelated employers, too. The most common type of MEP for unrelated employers is when companies use a Professional Employer Organization (PEO). In that case, the PEO sponsors a plan that covers the client-employers’ employees, and sometimes the owners of the client-employers, too. There are also MEPs sponsored by some organizations or associations that can be adopted by the employers that are members in the organization or association.
Many practitioners, particularly third party administrators (TPAs), would like to offer their clients the MEP option – that is, participation in a plan that the TPA sponsors for its client-employers. Some TPAs already offer this option, but many are waiting until the DOL simplifies its rules. In these situations, the participating employers have no relationship at all to each other, except for the fact that they have used the services of the same TPA. These plans are commonly called “Open MEPs.”
Congress and the President both favor MEPs as a way to make retirement plans either less expensive or better administered … or possibly both. They believe that the responsibilities placed on small employers in sponsoring a plan are too many and difficult for many business owners, so those companies have no retirement plans for their employees. Several bills are now pending in Congress to make all MEPs – including Open MEPs – easier to administer. In addition, the President issued an Executive Order on August 31, 2018, directing the DOL to examine policies in relation to its historically restrictive stance on MEPs and to consider how these structures could expand access for workers to workplace retirement plans, as well as health plans.
What did the DOL do?
The DOL issued a proposed regulation (the “Proposal”) and has asked for comments from the public in relation to both the Proposal and the remaining MEP limitations. Under the Proposal, if adopted, the DOL will consider PEO plans to be MEPs and remove the restrictions it has historically placed on those plans. Second, the DOL made it easier for plans of certain organizations to constitute MEPs, so that they are also easier to administer. The DOL did not, however, give proper MEP status to Open MEPs. While these plans may still operate as they always have, some of the administrative burdens on these plans remain.
It must be stressed that these are only proposed regulations. However, the DOL earlier issued similar regulations for health plans, and those went from proposed to final in just a few months.
Nonetheless, as noted above, the Proposal does not address the types of MEPs that non-PEO service providers want to make available to their clients. We hope that the comments to the DOL will spur action on that front or that Congress passes one of the pending bills that would simplify the rules for Open MEPs, thus permitting them to be an additional and effective method for employers to provide retirement benefits to their employees.
Ilene H. Ferenczy, J.D., CPC, APA, is the Managing Partner of Ferenczy Benefits Law Center, an employee benefits law firm in Atlanta, Georgia. She advises clients on all types of employee benefit plans, particularly focusing her practice on qualified retirement plans, benefits issues in mergers and acquisitions, and advising third-party administrators of employee benefit programs on technical and practice issues.