Over the past several years, Multiple Employer Plans (MEPs) have received quite a bit of attention in Washington, as well as among retirement plan professionals. With varying statistics pointing toward some level of retirement plan coverage gap, practitioners and regulators are seeking remedies to broaden coverage. Because of benefits that the MEP structure can create for some employers, MEPs are viewed by many as one solution to help expand access to workplace savings plans (particularly for small businesses), thereby aiding in shrinking the gap. Over the next several weeks, this series of articles will explore:
- MEP basics
- Their pros and cons
- The proposed rule and regulation changes that could affect them.
A Little History
MEPs have been around for quite a while — since the early to mid-twentieth century. In fact, MEPs were around before there were relevant laws to really govern their structure. Unions were the primary early adopters of this plan type, and as time progressed – with the help of regulation – other groups couldn’t pass up joining in on the fun. Between 2003 and 2011, there was a bit of rapid expansion in MEP adoption, largely a result of IRS Revenue Procedure 2002-21. However, in 2012 – in the wake of DOL Advisory Opinion 2012-04A – growth in the MEP space all but halted. Today, there are close to 4,600 DC Plan MEPs in the US private sector retirement system, representing around 0.7% of all private sector DC Plans¹.
Despite their longevity, there is no shortage of confusion around MEPs. And it’s mainly the rules that govern them that create the confusion. The MEP itself, the Plan, is a pretty simple structure – it’s just a plan with two or more adopting employers (that are unrelated²).
To help bring into context the substantial dialogue around MEPs today, let’s cover a few basics first. Under ERISA, an employee benefit plan can only be sponsored by an employer, an employee organization, or both. An Employer under ERISA is defined 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.”
Therefore, when interpreting these provisions of ERISA – an employee benefit plan can be sponsored by a single employer, an employee organization – such as a Union, or a bona fide group of employers acting in the interests of its employer members. Generally speaking, in order for a group of employers to be considered a “bona fide employer group or association,” a facts and circumstances test must be met. Specifically the group must:
- Be an organization with a business purpose unrelated to the provision of benefits
- Share a common bond or nexus, and legitimate relationship unrelated to just the provision of benefits
- Allow the individual participating employers to exercise control over the plan in form and substance.
When a group of employers satisfies these conditions (and is therefore considered an “employer” under ERISA), it can sponsor an MEP that is considered a single plan for ERISA purposes. This type of MEP is typically identified as a “Closed MEP.” When a group of employers that do not meet the aforementioned conditions participate under the same plan – it gives rise to the plan structure that is typically designated the “Open MEP.”
In the next segment of this series, we’ll look closer at “Open” and “Closed” MEP structures, reviewing their similarities and their differences.
¹Source: Federal Register, Vol 83, No.205 (data obtained from EBSA using 2015 Research File of Form 5500 filings).
²The term “unrelated” in this series of articles is a reference to employers that are not members of a control group or affiliated service group.
Brian Nicholson is a Senior Sales Relationship Manager at BPAS.