On July 29, 2019, the DOL issued the final Regulations related to Multiple Employer Plans (“MEPs”) and who can offer a MEP to their participating employers. As discussed in our previous article, the proposed regulations were issued in response to President Trump’s Executive Order relating to MEPs. The final rule closely follows the proposed rules and allows two different kinds of MEPs: Association MEPs and PEO sponsored plans.
For a MEP to satisfy the Association MEP 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 for client-employees.
- Have substantial control over the functions and activities of the MEP as plan sponsor, plan administrator and fiduciary.
- 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.
Unlike the proposed rules, the final rule added the following provisions:
- The DOL provided a safe-harbor for determining whether the PEO performs substantial employment functions.
- The DOL clarified that the PEO’s fiduciary obligations towards plan participants continues even after a participating employer no longer contracts with the PEO.
While the finalized Regulation does not give guidance regarding Open MEPs, the DOL did indicate that it is contemplating guidance if legislation is not passed.
If you have questions or want further detail about the final Regulations, please contact your Nyhart consultant.