ASK THE LAWYER: WILL THE DOL’S MEP PROPOSAL MAKE MEPS AVAILABLE TO YOU? by Carol Buckmann
“Will a MEP become an option for me now?” Shortly after my last column came out describing pros and cons of adopting a multiple employer plan (MEP), the Department of Labor responded to an order by President Trump by issuing proposed regulations intended to expand access to MEPs. These are plans to which unrelated employers can contribute to having pooled investments, professional administration and, if certain requirements are satisfied, they can be a “single plan” MEP and make one 5500 filing and have one combined required CPA audit. If they are not met, and employers still pool together, they will be treated as maintaining separate plans.
The key legal issue here is that plans, including MEPs, must be adopted by an employer of employees covered under the plan. Up to now, the Department of Labor defined “employer” narrowly to preclude unrelated employers from adopting single plan MEPs.
Unfortunately, I had to tell that client that these eagerly awaited regulations did not authorize the kind of MEP he wanted. A single plan MEP sponsored by his recordkeeper that filed one Form 5500 would still not be an option because the regulations do not go nearly as far as proponents of MEPs had hoped.
What Was Their Wish List?
- An end to the requirement that participating employers in MEPs where there was no common nexus among the employers must file individual form 5500’s and have separate audits.
- An end to the “one bad apple” rule that permits the IRS to disqualify a whole plan if anyone employer violates the qualification rules.
- Clear rules on the allocation of fiduciary responsibilities and strict limits on the fiduciary responsibilities retained by the participating employers.
What Was Proposed
The proposal took baby steps forward when an overhaul of the rules would have been appropriate. The proposal would permit employers in the same geographic area to adopt MEPs, a change from current law. It would also clearly permit certain PEOs to sponsor MEPs and working owners of businesses who worked at least 20 hours a week to participate in MEPs. However, the proposal doesn’t permit “open MEPs” with unrelated employers, such as all clients of a recordkeeper, to file one 5500 or have one audit. It still requires that the employers have a relationship other than adopting the same plan. That is why my client’s recordkeeper couldn’t just offer a MEP for all of its clients.
Options under the Proposal
Some options for employers who don’t want to file their own 5500’s under the proposal are:
- Join a PEO that performs employer functions
- Be part of an association with common interests
- Be part of a MEP covering employers in the same geographic area
What Do We Still Need?
We need IRS (or Congress) to move forward on the elimination of the “one bad apple” rule, which may be beyond the scope of the Department of Labor’s power, and in making open MEPs that are treated as a single plan a reality. Bills before Congress that would accomplish this could be folded into tax legislation if any is adopted this year. Comments may also be filed with the Department of Labor urging it to expand the scope of its proposal. These may or may not convince the Department of Labor to further expand MEP eligibility.
Carol Buckmann is a founding partner at Cohen & Buckmann P.C., and has practiced at major law firms specializing in the areas of employee benefits and executive compensation for over 30 years. Carol frequently blogs, writes articles and is quoted in the media about current employee benefit issues.