DOL Changes Who Can Participate in a Multiple Employer Pension Plan

38 million US employees do not have pension plans. President Trump hoped to reduce those numbers with an August 31, 2018 executive order which directed the Department of Labor (DOL) to “expand the circumstances under which United States employers, especially small and mid-sized businesses, may sponsor or adopt a multiple employer plan (MEP) as a workplace retirement option for their employees…”

A multiple employer plan is a plan maintained by two or more unrelated employers who are not members of a controlled group. The MEP requires some form of commonality among the firms, such as being in a similar industry. 

A new Department of Labor rule, issued July 29 and effective September 30, 2019, expands the parameters for participating in a MEP to include membership in the same association. The DOL expansion also provides that a professional employer organization (PEO) may sponsor a MEP.

For example, the San Jose Chamber of Commerce may sponsor a MEP for its members.

OPEN MEP

The DOL expansion does not create an “open MEP” under which multiple employers have no common characteristic, affiliation, or purpose. An “open MEP” would permit financial institutions or other persons to maintain a single defined contribution retirement plan on behalf of multiple unrelated employers. The proposed SECURE Act would authorize “open MEPs.”

ADVANTAGES

The MEP is maintained by multiple employers for the purpose of pooling plan assets to reduce administrative costs and for advantageous investing. Plans with $10 million in assets are charged almost four times as much in investment fees as those charged to plans with $1 billion in assets.

WHY DO WE CARE?

Our small business clients will be hearing from their associations that there have been changes to pension plan rules that reduce employer costs. This basic information on MEPs provides a few answers for client questions.