DOL Finalizes Regulations Expanding Access to MEPS By Small Employer Groups

On July 29, 2019, the U.S. Department of Labor (“DOL”) issued final regulations intended to expand access to retirement savings plans (including 401(k) plans) for employees of small businesses, by allowing them to group together for purposes of establishing “multiple-employer defined contribution retirement plans,” a type of “multiple employer plan” (“MEP”). The final regulations seek to accomplish this by allowing certain employer groups and/or professional employer organizations to be considered “employers” for purposes of ERISA.

Like the proposed regulations that were released on October 23, 2018, the final regulations allow the establishment of a MEP by either “a bona fide group or association of employers” or “a bona fide professional employer organization.” When a “bona fide group or association of employers” sponsors a MEP, the plan is also frequently known as an “association retirement plan” or “ARP.”

The terms “bona fide group or association of employers” and “bona fide professional employer organization” are defined as follows:

Bona Fide Group or Association of Employers. For purposes of the final regulations, the group or association must meet each of the following criteria:

1. The group or association must possess at least one “substantial business purpose” that is unrelated to providing employee benefits.
2. The group or association must be controlled by its employer members and be the direct employer of at least one covered participant.
3. The group or association must have a formal organizational structure
4. The members of the group or association must share a “commonality of interest.”
5. Participation in the MEP must be available to employees and former employees (and their beneficiaries) of employer members of the group or association.
6. The group or association must not be a bank, trust company, insurance issuer, broker-dealer, or similar financial services firm.

Bona Fide Professional Organization (“PEO”). A PEO can establish a MEP if each of the following is met:

1. The PEO performs “substantial employment functions.”
2. The PEO has substantial control over the MEP as both plan sponsor and plan administrator and is a “named fiduciary” with respect to the plan.
3. The PEO must ensure that each client employer adopting the MEP is the direct employer of at least one employee participating in the MEP.
4. The PEO must limit availability of the MEP to employees and former employees (and their beneficiaries) of the PEO, its client employers, and its former client employers.

Expanded Retirement Plan Coverage.  If a group of employers meets the definition of either a “bona fide group or association of employers” or a “bona fide professional employer organization,” then it is considered to qualify as an “employer” under ERISA and is, accordingly, eligible to sponsor a MEP. This operates to expand retirement plan membership to a broader swath of the U.S. work force.

This result has occurred largely in response to an executive order signed by President Trump on August 31, 2018, that was focused on expanding coverage under 401(k) plans. The executive order directed the U.S. Treasury Department and the DOL to consider revising existing ERISA regulations to make it easier for small businesses to offer 401(k) plans to their employees. Take a look at our previous blog for a recap.

Request for Information Regarding Open MEPs and Corporate MEPs.  Released along with the final regulations themselves is a request for information (“RFI”) on “whether to amend existing DOL regulations to facilitate the sponsorship of  ‘open MEPs’ by persons acting indirectly in the interests of unrelated employers whose employees would receive benefits under such arrangements.”

In other words, the DOL seems to be interested in an even greater expansion of the ERISA definition of “employer” to permit “open MEPs” (plans covering employers that have no relationship other than their participation in a MEP), along with “corporate MEPs” (plans that cover employees belonging to a group that does not meet the definition of either a “controlled group” or an “affiliated service group”).  Comments on the RFI by interested persons are due by October 29, 2019 – the  effective date of the final regulations.

Pending SECURE Act.  On May 23, 2019, the U.S. House of Representatives passed, by a 417 to 3 margin, the “Setting Every Community Up for Retirement Enhancement Act” (the “SECURE Act”). As of the August 2019 recess, the Senate has not taken action on the proposed legislation.

Notably, the SECURE Act also seeks to expand retirement plan coverage to employees of smaller employers by making comprehensive changes to ERISA and the Code – in part to facilitate “open MEPs” (see above). If passed and signed into law, the SECURE Act would set into place a significantly broader expansion of retirement plan coverage than would be permitted under these final regulations. This is because, technically, only changes in the language of ERISA itself can create truly open MEPS – doing so is beyond the power of the DOL to accomplish through its regulatory power alone.

Effective Date.  The final regulations become effective on and after September 30, 2019.

The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice.