Welcome to the finale of our series on the Department of Labor’s new regulations, updating the definition of “Employer” under ERISA to extend the availability of multiple employer plans to more businesses.
We’ve covered a lot of ground so far:
- Bona fide groups or associations are allowed to sponsor MEPs, and the DOL expanded the required commonality among adopting employers to include geography and industry.
- Working owners are considered employers for this narrow purpose, allowing them to participate in association retirement plans (but not PEO MEPs).
- Bona fide PEOs that provide substantial employment functions on behalf of their client companies are allowed to sponsor MEPs.
- Corporate MEPs, long thought to be “safe”, may not be a sure bet after all if the participating employers do not otherwise satisfy the commonality requirement.
- There are a number of other details regarding fiduciary duties, reporting and disclosure, and companies departing MEPs that are not covered in the regulations themselves but that the DOL did address in the preamble.
The IRS proposed new rules that provide relief for the so-called “One Bad Apple Rule” so that the bad acts of a single participating employer do not spell certain disaster for an entire MEP.
Open MEPs still are not permitted until Congress passes legislation to allow them. It is anyone’s best guess if/when that will happen given the bi-partisan dysfunction that has become the norm in Washington, D.C.
So, What's Next?
Most series finales include some sort of cliffhanger to entice audiences to return, and this series is no exception. Not quite as exciting as an action hero facing a swarm of armed bad guys, this cliffhanger involves the appeal of a court decision.
Back in March, the Washington, D.C. District Court ruled against the DOL in a lawsuit brought by the State of New York and others. What did the Court strike down? The DOL’s expansion of the definition of “Employer” to include working owners and associations of companies with geography as their point of commonality. Sound familiar? It should, because the language the Court took issue with is identical to the language the DOL uses in these new regulations on MEPs.
Granted, the March opinion dealt with association health plans rather than retirement plans, but the DOL has consistently (both before and since) gone out of its way to indicate that the underlying rules are the same regardless of the type of benefit being offered. They said as much in their 2012 Advisory Opinion that brought open MEPs to a screeching halt, and they make a similar point numerous times throughout these new regulations. Here is a direct quote from the preamble:
“The provisions…generally mirror those in the final AHP Rule that define what is a bona fide group or association capable of establishing an association health plan. These provisions have the same meaning and effect here, as they have there. It makes sense to have consistent provisions for AHPs and MEPs, because the Department is interpreting the same definitional provisions in both contexts…”
That doesn’t offer much wiggle room to claim that the Court decision vacating those provisions in the context of health plans would not also impact retirement plans.
Interestingly, the DOL only makes mention of the lawsuit once in the MEP regulations, and it isn’t until a two-sentence footnote, nearly halfway through the preamble. They do, however, make a point of highlighting the severability provision in the regulations. It says that if any portion of the regulation is invalidated, the portion that is not struck down remains in effect.
What is not clear is what would happen to any association retirement plans that are established between the September 30, 2019 effective date of the MEP regulations and the date of a final Court ruling in the event the prior decision is upheld. Will they be required to terminate? Will they be treated as collections of separate stand-alone plans similar to the aftermath of the 2012 opinion invalidating open MEPs? Will there be any remedial action required for the interim? Unfortunately, there really is no way of knowing until the situation plays out. In the meantime, any associations wishing to establish plans that use geography as their point of commonality and/or that want to cover working owners should consider their timing and risk tolerance in deciding whether they want to go full steam ahead or take the wait and see approach.
Conclusion
These new MEP regulations are sure to create more streamlined ways for small businesses to offer 401(k) benefits to their employees, but contrary to how they are portrayed in the financial press, they are not the end all/be all of the retirement plan world.
The experts here at DWC have been following MEPs for many years, since well before the now infamous DOL Advisory Opinion 2012-04A. We have experience working with all types of plans, including MEPs, and our focus has always been on helping our clients find the plan design that is best suited to meeting their objectives rather than trying to push the flavor of the week.
We dig into all these details, so you don’t have to. Are you considering starting or joining a MEP? Are you already part of a MEP and looking at alternatives? Are you simply looking for help with your retirement plan and don’t know or care about MEPs? Either way, give us a call or email and we are glad to help you understand your options and what they mean for you, your company, your clients, and/or your employees.
