PLANSPONSOR - August/September 2019 - 63

INSIDE ANGLE
Final 'MEP'
Regs at Last
Which employers may sponsor MEPs?
O
ver the last several years, Washington, D.C., policymakers
have increased their focus on providing greater
access to private retirement plans for the American
worker. While officials have had many ideas on how to do this, one
commonly considered solution has been multiple employer plans
(MEPs). Last year, President Trump signed Executive Order 13847,
which directed the Department of Labor (DOL) to consider issuing
regulations or other guidance to make it easier for small and midsize
businesses, including those with nontraditional employment
structures, to participate in MEPs.
On July 29, the DOL released its final regulation clarifying
the circumstances under which " bona fide " groups or associations
of employers and professional employer organizations (PEOs)
could sponsor a defined contribution (DC) MEP. The agency also
issued a request for information (RFI) to the public asking whether
to produce additional regulations to allow unrelated employers to
participate in " open " MEPs.
While the regulation only goes so far, it does provide clarity
for those considering sponsoring a MEP. Nevertheless, the
Setting Every Community Up for Retirement Enhancement
(SECURE) Act of 2019, pending in Congress, would expand the
availability of MEPs beyond what the final regulation allows.
Under the Employee Retirement Income Security Act
(ERISA), a plan must be established and maintained by an
employer. ERISA defines employer as " any person acting directly
as an employer, or indirectly in the interest of an employer, in
relation to an employee benefit plan, including a group or association
of employers acting for an employer in such capacity. "
ERISA doesn't explain what it means to act " directly as an
employer " or " indirectly in the interest of an employer, in relation
to an employee benefit plan. " Moreover, prior DOL guidance
generally limited MEP participation to employers that share a
common nexus unrelated to the provision of employee benefits.
Final Regulation
The regulation applies only to defined contribution retirement
plans. Importantly, it does not permit open MEPs, in which wholly
unrelated employers could participate, and it does not permit
financial institutions to act as the sponsor of a MEP. It provides
that a bona fide group or association of employers may sponsor
a MEP for the employees of the group or association's employer
members. To be considered a bona fide group, a body must:
* Have a formal organizational structure with a governing
body and bylaws or other similar indications of formality;
* Be controlled by its employer members, who also must
control the MEP;
* Have at least one substantial business purpose unrelated
to offering and providing employee benefits to its employer
members, though the primary purpose of the association or
group may be to offer and provide MEP coverage;
* Limit plan participation to employees and former
employees of employer members and their beneficiaries;
* Have members with a commonality of interests, meaning
the employers must be either 1) in the same trade industry, line
of business or profession, or 2) have a principal place of business
within a region that does not exceed the boundaries of the same
state or same metropolitan area; and
* Ensure that each employer member acts directly as an
employer for at least one employee participating in the MEP;
The regulation also permits bona fide PEOs to act as
employers under ERISA in order to sponsor a MEP. A PEO must
satisfy four requirements to be considered bona fide:
* Perform " substantial employment functions " on behalf of
client employers;
* Have substantial control over functions and activities of the
MEP, as plan sponsor, plan administrator and a named fiduciary;
* Ensure that each client employer participating in the MEP
has at least one employee participant covered under the MEP; and
* Ensure that participation in the MEP is limited to current
and former employees of the PEO and of client employers, as
well as their beneficiaries.
Observations and Implications
While the regulation does not substantially expand the entities
that may sponsor a MEP, it provides useful clarity for those considering
the arrangement. Moreover, the DOL's RFI on open MEPs is
significant, as it may signal the agency is willing to permit these
plans, which could have the potential to profoundly affect the way
retirement planning is delivered to American workers.
Stephen Saxon is a partner with Groom Law Group,
Chartered, and George Sepsakos is a principal with Groom.
Offices for Groom are in Washington, D.C.
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