Meet the MEPs: Corporate MEPs

Meet the MEPs: Corporate MEPs

Thanks to the Department of Labor’s recently published regulations, we went from just having multiple employer plans top having several different types of MEPs.  We’ve already covered association MEPs and PEO MEPs, so now it is time to take a quick look at what the DOL calls “corporate MEPs.”

Review

As a quick refresher, a MEP is a single plan that covers employees of more than one unrelated company. It generally takes overlapping ownership of at least 80% for companies to be considered legally related to one another for retirement plan purposes.  This is referred to as a controlled group.  Note: it is also possible for companies to be related via an affiliated service group relationship, but those rules are a little too involved to address here.

Conventional Wisdom...Or Not

In our series thus far, we have focused on situations in which the businesses involved have been completely unrelated other than being part of the same association or PEO.  But what about situations where two companies have degree of overlapping ownership, just not enough to be cause them to be part of the same controlled group?

The conventional wisdom has consistently been that more or less any meaningful amount of overlapping ownership would suffice to satisfy the DOL’s commonality requirement.

One commenter on the proposed regulations asked DOL to opine.  The fact pattern presented is basically that there are two companies with 60% overlapping ownership.  They are in two different parts of the country and in two completely unrelated industries.  The commenter pointed out that it would appear these two companies do not meet the new standard of commonality as described in the final regulations.

In response, the DOL noted that while it recognizes that “meaningful levels of common ownership” may be an indication of the requisite commonality, it “lacks a meaningful basis on which to determine the precise level of ownership…that conclusively distinguishes bona fide ownership groups from commercial enterprises…”

Wait, what?

We kind of get where they are coming from with this.  It wouldn’t be the first time that someone tried to manipulate or transfer company ownership to get around a rule, and most people acting reasonably and in good faith would likely know a “bona fide ownership group” when they see it.  However, having that stated directly in the preamble to the regulations now creates an air of uncertainly and an opening for potential challenge on audit.

For sponsors of corporate MEPs that find themselves with a set of facts similar to those described above, we suggest proactively documenting the relationship between/among the unrelated companies.  If you are not sure where to start, give us a call; we are glad to work with you to explore the relevant facts and circumstances.

Towards the end of the preamble to the proposed regulations, the Department of Labor addresses a grab bag of miscellaneous topics related to multiple employer plans – from reporting and disclosure to plan governance and other things in between.  We will cover some of those in our next installment.

Access the Knowledge Center