Back in March, Assistant Secretary of Labor Phyllis Borzi testified before a Senate committee, expressing concern about whether open MEPs can be treated as single plans under ERISA since there is no commonality among adopters. A recording of her testimony is here, with the MEP comments beginning around the 36th and 43rd minutes. Some commentators thought the testimony was a sign of what DOL’s official position would be, while others suggested it gave no cause for concern, because the Internal Revenue Code does not require the commonality that Asst. Sec. Borzi described.
Earlier this month, the DOL filed a memo with the Court in the embezzlement case against Matthew Hutcheson, the fiduciary of an open MEP. The memo stated that the plan in question is “not a single ‘multiple employer plan’…because there was no commonality of employment-based interest among the participating employer sponsors of the plans apart from the provision of retirement benefits” and because “there was no control of the program by the participating employers such that [the plan] qualified as a ‘group’ or ‘association’ of employers…” Some commentators saw even stronger foreshadowing, while others suggested the memo may not reflect the true view of DOL since it was written by one of the staff attorneys from DOL’s Seattle office rather than an official out of Washington.
On Friday afternoon, just as we were looking forward to the Memorial Day weekend, DOL’s voice grew louder with the publication of Advisory Opinion 2012-04A in which it notes that open MEPs are not single plans under ERISA but are collections of individual plans. The AO reiterates many of the conclusions reached in previous opinions but directly ties them to open retirement plan MEPs rather than to multiple employer welfare arrangements. It also addresses several of the premises some in the marketplace have used to conclude that open MEPs are single plans.
So what does all this mean for open MEPs? The short answer is that each employer that has adopted an open MEP is treated as if they have their own stand-alone plan. The nondiscrimination rules have always applied separately to each adopter; now the reporting and disclosure requirements (Form 5500 including audit, etc.) must be applied separately. Since the AO interprets existing rules (rather than creating new ones), this means each separate adopter should have been filing its own Form 5500 all along. Time will tell what enforcement action DOL might take or what transition relief it might provide.
A larger question is whether promoters of open MEPs will still be able to demonstrate a value proposition. The selling point I hear most frequently is cost savings for small employers due to bulk purchasing power and economies of scale; however, I am aware of a number of reputable service-providers whose fees are quite competitive even for small businesses. When you starting adding fees that apply to the MEP that don’t necessarily apply to a stand-alone plan (annual CPA audit fees, attorney fees for document maintenance, directed trustee fees), any MEP pricing advantage begins to narrow. With a lessening of the pros, the cons take on greater significance.
Is Advisory Opinion 2012-04A the death knell of the open MEP? Doubtful. Will open MEP sponsors/promoters have to make some changes to adapt? Absolutely. In deciding whether to adapt with the MEP, should adopters consider how forthcoming their MEPs where about the questions DOL has now answered? Strongly suggested.