Just before Labor Day this year, President Trump issued an Executive Order (“EO”) relating to several retirement plan issues (see our article here). One of the items Trump addressed was the rules relating to Multiple Employer Plans (“MEPs”). In response to the EO, the Department of Labor (“DOL”) has issued proposed regulations.
As a part of the regulations, the DOL indicates that there can be two different kinds of MEPs: an Association Retirement Plan (“ARP”) or a PEO sponsored plan.
For a MEP to satisfy the ARP category, you must have a bona fide group or association of employers. There are several factors that determine whether there is a bona fide group. To be a bona fide group, the following must be met:
- The primary purpose of the group or association may be to provide a MEP, but there must be at least one other substantial business purpose, such as promoting the common business interests of the members.
- The group must have a commonality of interest, which can be accomplished with being in the same trade, industry, line of business or profession or having a principal place of business in the same region.
- Each participating employer must employ at least one person covered under the plan.
- Only employees of members of the group or association may participate.
- The group must have a formal organizational structure.
- Members that participate in the plan must control the plan.
- The group or association cannot be a bank or trust company, insurance issuer, broker-dealer, or other similar financial services firm.
In this instance the sponsor must be a bona fide PEO that contracts with employers to professionally manage their human resource functions. To be a bona fide PEO, the PEO must:
- Perform substantial employment functions and maintain adequate records.
- Have substantial control over the functions and activities of the MEP as plan sponsor, plan administrator and fiduciary.
- Must ensure each client employer that adopts the MEP has at least one participant directly employed by them.
- Ensure that only employees and former employees of the PEO and client employers are participating.
The regulations do indicate that individual employers will still retain their fiduciary responsibility for choosing and monitoring the MEP arrangement, as well as the responsibility for forwarding required contributions.
It is important to note that these regulations only apply to defined contribution plans. In addition, the regulations do not eliminate the “one bad apple rule,” which leaves concerns for employers that would participate in a MEP.
Nyhart will continue to monitor the progress of the regulations and pending legislation related to MEPs, as well as the other items addressed in the Trump EO. Please contact your account representative at Nyhart for more information or if you have any questions.