There has been recent news surrounding Multiple Employer Plans (MEPs) and Association Retirement Plans (ARPs, a type of MEP). MEPs (especially closed MEPs) and ARPs can allow small and mid-sized companies to join together to adopt one retirement plan with economies of scale and lower fees usually only available to much larger employers.
Intially, there were closed and open MEPs. Closed MEPs allowed the employers participating in the plan to be treated like a single employer with aggregated discrimination testing, one 5500, one audit and one bond. Open MEPs required separate discrimination testing, separate 5500s for participating employers, separate audits if the participating employers were “large” employers, and separate bonds. To be treated as a closed MEP, the participating employers needed to have an employment-based common nexus, or all be part of a “genuine” organization that looked out for the interest of its members. This criteria was difficult to interpret and determine.
Then, pursuant to President Trump's directive that access to workplace retirement plans should be expanded, the Department of Labor (DOL) finalized regulations on Association Retirements Plans (ARPs) for defined contribution plans in July of 2019 with an effective date of September 30, 2019. The DOL also came out with regulations allowing Association Health Plans (AHPs), but multiple states have (successfully) sued, stating that the AHP was an attempt to let employers get around the Affordable Care Act’s consumer protections. Thus, we do not recommend developing Association Health Plans at this time.
The ARP regulations allow plans that previously would have been considered open MEPs to be treated as a closed MEP, and thus treated as a single employer plan if certain conditions are met. Generally speaking, those conditions are:
- Commonality of interest, such as the employers are in the same trade, industry, line of business or profession or each employer has a principal place of business in the same region that does not exceed the boundaries of a single state or metropolitan area;
- Participating employers have at least one substantial business purpose unrelated to offering or providing MEP coverage or other employee benefits such as they are all members in a chamber of commerce or industry organization;
- A formal organizational structure. The DOL also clarified that PEOs could sponsor an ARP if they met certain conditions.
While the DOL’s ARP regulations were a step forward, they are still restrictive. Less restrictive open MEPs look like they may be coming soon:
- The DOL requested information from practitioners on why they should consider allowing “open” MEPs without the current requirements for AHPs and closed MEPs. Responses are due to the DOL by October 29, 2019.
- On October 14, 2019, the IRS requested comments and announced a public hearing on MEPs scheduled for December 11, 2019.
- The SECURE Act (Setting Every Community Up for Retirement and Enhancement Act of 2019) was overwhelmingly passed by the House of Representatives in May 2019, 417-3. This act would facilitate open MEPS without the requirements of the DOL’s ARPs. We are waiting for Senate approval.
We will continue to keep you posted.