At first blush, many in the industry assumed that the Department of Labor’s proposed rules expanding access to multiple employer retirement plans would include allowing for open MEPs by unrelated employers. The idea hasn’t gone away, but it’s not included in the current DOL proposal.
Issued in response to President Trump’s Executive Order, the DOL’s proposal does seek to make it easier for small businesses and the self-employed to join a MEP, but DOL officials believe open MEPs were a step too far outside of the existing statute.
Modeled after the DOL's Association Health Plans (AHPs) concept, the proposed rules provide that bona fide employer groups or associations and bona fide Professional Employer Organizations (PEOs) may act as an “employer” under ERISA section 3(5) for purposes of sponsoring a MEP. In each case, this interpretation is based upon the DOL’s conclusion that such bona fide employer groups, associations, or PEOs act “in the interest of” their employer members in relation to a retirement savings plan.
But when DOL unveiled the new proposal, the officials noted that they have to interpret the law as currently written in explaining why they did not include allowing for open MEPs, which are plans that cover employees of employers with no relationship other than their joint participation in the MEP.
They did note that pending legislation on Capitol Hill would address this.
“The DOL did a very good job within the limits of the law providing a structure to expand retirement coverage through associations and professional employment organizations,” explains Doug Fisher, Director of Retirement Policy at the American Retirement Association. Fisher notes that the MEP legislation before Congress goes a couple steps further and allows a broader group of organizations to sponsor and administer MEP legislation. “In total these proposals should they become final will significantly expand retirement savings opt?ions for full and part-time workers,” he adds.
Michael Kreps, a Principal at Groom Law Group, echoes that point. “There is a strong, bipartisan consensus around the Hill on legislation to materially expand the availability of MEPs, and the leading bills, one of which already passed the House, go significantly further than the Department of Labor’s proposed rule, which is relatively narrow in scope,” he notes.
The House-passed Family Savings Act would ease the commonality rules for MEPs and eliminate the so-called “one bad apple” rule. In addition, the Retirement Enhancement and Savings Act (RESA) includes a provision allowing for open MEPs, where there is no requirement that an employer be the plan sponsor. A financial firm would be permitted to sponsor the MEP and there is no need for the employers to be part of an association with trade or business ties under the commonality requirement to join the MEP.
The Senate may take up RESA or similar legislation when the chamber returns for a lame-duck session after the election.
Comments Requested
In the proposal, DOL notes that it considered, but decided not to include open MEPs as well as “corporate MEPs” because they implicate different policy concerns. But consistent with the Executive Order, the DOL notes that it is interested in receiving comments on these other categories of MEPs.
Corporate MEPs cover employees of related employers which are not in the same controlled group or affiliated service group. DOL says that it does not intend to convey that a corporate MEP could not be a single employee benefit plan under title I of ERISA. Rather, comments are requested on whether any regulatory provisions or other guidance is needed to address the MEP status of plans maintained by such related employers.
For open MEPs, comments are requested on whether and under what circumstances open MEPs or “pooled employer plans,” as addressed in the various legislative proposals, could be operated as an employment-based arrangement under ERISA.
To the extent that stakeholders believe these arrangements should be addressed in rulemaking, DOL asks commenters to address why such an arrangement should be treated as one employee benefit plan within the meaning of title I of ERISA rather than as a collection of separate employer plans being serviced by a commercial enterprise provider. Commenters are also asked to provide suggestions regarding the regulatory conditions that should apply to the particular arrangement.
A Groom Law Group Benefits Brief explains that a number of states and localities are implementing or considering establishing MEPs for in-state employers, but it notes that the impact of the proposed regulation on state-run MEPs is unclear. The brief notes that in 2015, the DOL issued Interpretive Bulletin 2015-02 providing guidance that states can establish MEPs because the participating employers have a nexus by virtue of the fact that the state is tied to the contributing employers and their employees by a special representational interest in the health and welfare of its citizens. Groom notes, however, that the proposed regulation does not explicitly reference the Interpretive Bulletin, though it would “supersede subregulatory interpretative rulings under ERISA section 3(5).”
The Ferenczy Benefits Law Center, in noting that the proposal does not address the types of MEPs that non-PEO service providers want to make available to their clients, says it hopes the comments to the DOL “will spur action on that front or that Congress passes one of the pending bills that would give single-plan treatment to open MEPs.”
