DOL Weighs In on Multiple Employer Plans (MEP) — Sort Of
- DOL is paying attention to TPAs acting as sponsors of MEPs
- In fact, very few TPAs do this
- However, we have learned a bit more on how the DOL looks at this opportunity for plan sponsors and participants
Closely-held business owners and 401(k) retirement plan sponsors need relief. Regulations, rules, legal risks, employee issues and the hard current business realities are increasingly burdensome for companies and business owners.
Alternative approaches to 401(k) plans are being explored. These offer the potential to deliver real improvements and be more employer and employee-friendly.
One of the useful may be multiple employer plans or MEPs and specifically open-architecture MEPs (OAMEP).
Here is a link to an article that explains more about OAMEPs. Here, however, let’s look a little more deeply at a current debate on how to implement and sell and OAMEP and adhering to DOL regulations and concerns.
DOL Concerns? Maybe
Here is a brief comment on a recent DOL discussion.
We should say that very few TPAs even consider being a plan sponsor for MEPs – so this may be a moot concern. In fact, there is no data, or anecdotal evidence, to support the basic premise of a “burgeoning trend.”
In fact, TPAs can, and are currently, be effective providers (and not sponsors) to an MEP.
However, this (perhaps largely hypothetical) concern of the DOL does help to highlight ground rules for MEPs and helps define opportunities for advisors and other professional serving closely-held business owners and firms.
The text below is excerpted from the full article linked here.
“Multiple Employer Plans: Maybe Not So Much
There is a burgeoning trend in providing third party administration (TPA) services for qualified retirement plans where the TPA sponsors a multiple employer plan. Under this structure, the TPA firm becomes the actual plan sponsor, and permits its client companies to adopt the plan as participating employers. Why do this?
Well, among other things, the value to the clients is that:
- A significant portion of the fiduciary duties with regard to plan administration will be performed by the TPA, who is trained to do this properly.
- Furthermore, the plan will benefit from economies of scale, including potentially lower asset management rates (because the pool of money is larger) and a division of administrative costs among several employers (e.g., the multiple employer plan would require only one CPA audit).
- Among other things, the value to the TPA firm is that it has more control, which should enable it to be more effective in providing its services.
A multiple employer plan is defined in Internal Revenue Code (the Code) Section 413(c) to be (believe it or not):
- a plan maintained by more than one employer.
- ERISA defines an employer to be “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan;
- and includes a group or association of employers acting for an employer in such capacity.”
- ERISA further requires that an employee benefit plan be sponsored by an employer.
Bottom Line — The DOL representatives said that it is their opinion that the structure being considered by some TPA firms is not a multiple employer plan, but a series of individual single-employer plans covered under a common document.
Why? Because there is not a sufficient connection between the plan sponsor (the TPA firm) and the participating employers and their employees to enable the TPA firm to act as the plan sponsor.
If the DOL position holds, many of the advantages to the TPA-provided multiple employer plans evaporate.