Department of Labor proposed regulations would allow certain employers (including employer groups or associations) and business owners with no employees to share a single 401(k) plan. This arrangement would transfer administrative and compliance responsibility to the sponsor of the retirement plan under a multiple employer plan, or “MEP.”
Under the proposed regulations, the MEP sponsor would be responsible for ERISA reporting and disclosure requirements for all of the participating employers. So, there would only be one ERISA bond and one annual report no matter how many employers participate in the MEP plan. MEP sponsors would also be responsible for general fiduciary duties although each participating employer would continue to be responsible for choosing the MEP plan, reviewing its performance, and arranging for employer and employee contributions to the plan.
MEPs can also be offered through qualifying professional employer organizations (“PEOs”), which are businesses that perform certain employment-related functions for its employer clients, such as hiring, payroll, employee benefits and HR functions.
So, the proposed regulations are intended to expand availability of 401(k)-type plans to smaller employers with the prospect of making such plans available at a lower cost. But bear in mind that the availability of MEP retirement plans is subject to a number of requirements, principally:
- MEP sponsors must have a business purpose other than just providing retirement plan benefits to its member employers.
- MEP members must have a “commonality of interests” such as (1) being in the same trade, business or profession, or (2) having a principal place of business in the same state or city as the other MEP members.
So, MEPs might work to expand the availability of 401(k)-type plans at a cheaper price for smaller employers. They could also protect member employers from responsibility for much of the plan’s administrative compliance. But bear in mind that the above is just a brief summary of the requirements for MEP members and MEP sponsors. Any specific MEP arrangement should be carefully reviewed before entering into a MEP participation agreement.
Smaller employers who find that candidates in a competitive labor market need to have 401(k) benefits may find a MEP plan to be a simpler, cheaper alternative to adopting their own plan. Also, employers with 25 or more Illinois employees who do not currently have a retirement plan will be required to adopt an Illinois “Secure Choice” plan by no later than November 1 of this year (click here for details on the Secure Choice program). Adopting an available MEP plan might prove to be an attractive alternative.