IRS and DOL Release MEP Regulations
A multiple employer plan, or MEP, is a qualified plan sponsored by two or more unrelated employers. Pension industry groups, for years, have encouraged more favorable MEP laws and rules to increase small business access to workplace retirement plans.
Two main hurdles exist, however, that prevent widespread adoption of MEPs. The first is the so-called “one bad apple” rule in which a qualification failure by one employer can result in a plan disqualification for all employers. The IRS issued proposed regulations July 3 that would eliminate the “one bad apple” rule. The regulations would provide for a detailed procedure on how a plan could avoid disqualification based on a single employer’s compliance failure. Specifically, the rule would provide for a series of notices to the employer with the compliance failure to correct the failure or the employer would be removed from the MEP.
The public may submit public comments in connection with the proposed rule by October 1. After reviewing the comments, the IRS is expected to issue final regulations, eliminating the “one bad apple” rule.
The second hurdle involves the “Open MEP vs. Closed MEP” issue. A “closed MEP” allows a group of unrelated employers that have a common bond to adopt a MEP. A closed MEP constitutes a single plan (even though multiple unrelated employers have adopted the plan), permitting a single 5500, audit, and bond for the entire MEP. An “open MEP,” on the other hand, would allow any employer to join a MEP without meeting the common bond requirement and still be considered a single plan.
The DOL issued a final rule July 29 that did not adopt the “open MEP,” concept but said that employers could meet the common bond requirement if they were in the same trade, industry, line or business or have a principal place of business in the same state or metropolitan area even if the area crosses state lines.
The DOL has requested comments presumably with the goal of issuing future regulations that would permit open MEPs. Finally, the SECURE Act, which has passed the House and is pending in the Senate, if passed, would remove the common bond requirement thus allowing open MEPs.
Union Bank will continue to keep you updated on these developments as they occur.
Electronic Disclosure Rules Coming
The DOL sent a proposed rule to the Office of Management and Budget (“OMB”) on August 16 in connection with providing retirement plan notices to participants in electronic format. The proposal responds to an earlier Presidential order, directing the DOL to explore ways to reduce costs and burdens on employers and fiduciaries responsible for providing required notices to participants.The OMB typically takes 30 days or less to review a proposal. Therefore, it is expected that by the time you read this note, the proposed rule will have been issued. Union Bank will provide detailed information about the proposed rule next quarter.