In recent years, employers seeking to reduce costs, eliminate plan audits and simplify administration have been encouraged by advisors to utilize what are called Multiple Employer Plans or “MEPs”. In a MEP, employers are able to commingle assets for investments and consolidate administration. MEPs typically file a single Form 5500 thus reducing the expenses related to such filing and the elimination of individual plan audits where they might otherwise be needed.
MEPs have existed for some time. Typically, they have been “closed” MEPs in that there was some nexus between the employers using the MEP. The classic examples are 401(k) MEPs sponsored by Professional Employer Organizations (PEOs), and MEPs sponsored by groups or associations such as chambers of commerce and professional associations for their members.
MEPs without such a nexus or “Open MEPs” have become more common in recent years. These MEPs are referred to as “open” in that any employer could join and did not need to be using the services of a PEO or be a member of the association to participate in the MEP. The only unifying element between these employers was their participation in the MEP.
The advantages of MEPs included the fact that small plans were able to commingle assets thereby providing investment choices and create cost efficiencies they would not be able to obtain in a standalone plan. Further, administrative costs were reduced because they were shared over a larger group. Finally, the MEP filed a single Form 5500, and a plan covering more than a 100 participants did not need its own audit.
In two recent Advisory Opinions (DOL Adv. Op. 2012-03A and DOL Adv. Op. 2012-04A) the Department of Labor (DOL) reviewed Open MEPs to determine whether these plans would constitute a “single employee pension benefit plan” under ERISA. The DOL concluded that in an Open MEP arrangement where there is no employment based common nexus or other “genuine organizational relationship” between the employers beyond the participation in the MEP, there is no single employee pension benefit plan for purposes of ERISA. Instead, according to the DOL, there is simply a collection of individual plans sharing a document and a common pool of investments.
The importance of that conclusion is it undermines some – but not all – of the Open MEPs advantages. The employers in the Open MEP could continue to share administration and documents. In addition, they could commingle assets for investments.
But what would change is that each employer would need to:
- file a separate Form 5500 for its plan
- obtain its own plan audit if the plan covered over 100 participants
- obtain its own fidelity bond for the plan
Employers should note that the Advisory Opinions are not technically applied in a prospective basis. What it means is that the obligation to file Form 5500 separately and have audits performed would have been present throughout the time the employer was in the MEP. Based on that, the DOL could take the position that employers who did not file Form 5500’s and have audits (if needed) for all the years they participated in the Open MEP are potentially subject to penalties for failing to file Form 5500s. These penalties can be substantial.
The DOL Opinions technically apply only to the individuals or entities that asked for the opinion. However, the Opinions are illustrative of how the DOL views these matters. It is uncertain whether the DOL will seek to enforce this understanding of the nature of Open MEPs generally as a means of ensuring compliance. Or will the DOL just leave the Opinion out there as a warning to employers who wish to use Open MEPs.
Employers participating in Open MEPs (as opposed to closed MEPs, like PEO 401(k) plans) should consider the DOL Opinions as they relate to them and evaluate their potential liability for failure to file Form 5500s. There are programs that can be used to minimize penalties for failure to file.
As mentioned above, it is unclear how far and to what extent the DOL may enforce its position against Open MEPs. Employers are best advised to consider all the ramifications and take action to avoid penalties for noncompliance.
For more information, please contact:
Dale R. Vlasek 216.348.5452
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