On July 29, 2019, the U.S. Department of Labor (โDOLโ) 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 โmultiple-employer defined contribution retirement plans,โ a type of โmultiple employer planโ (โMEPโ). The final regulationsย seek to accomplish this by allowing certain employer groups and/or professional employer organizations to be considered โemployersโ 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 โa bona fide group or association of employersโ or โa bona fide professional employer organization.โย When a โbona fide group or association of employersโ sponsors a MEP, the plan is also frequently known as an โassociation retirement planโ or โARP.โ
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:
Bona Fide Professional Organization (“PEO”). A PEO can establish a MEP if each of the following is met:
Expanded Retirement Plan Coverage.ย If a group of employers meets the definition of either a โbona fide group or association of employersโ or a โbona fide professional employer organization,โ then it is considered to qualify as an โemployerโ 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.ย Released along with the final regulations themselves is aย request for information (โRFIโ) on โwhether to amend existing DOL regulations to facilitate the sponsorship ofย โopen MEPsโ by persons acting indirectly in the interests of unrelated employers whose employees would receive benefits under such arrangements.โ
In other words, the DOL seems to be interested in an even greater expansion of the ERISA definition of โemployerโ to permit โopen MEPsโ (plans covering employers that have no relationship other than their participation in a MEP), along with โcorporate MEPsโ (plans that cover employees belonging to a group that does not meet the definition of either a โcontrolled groupโ or an โaffiliated service groupโ).ย Comments on the RFI by interested persons are due by October 29, 2019 โ the ย effective date of the final regulations.
Pending SECURE Act.ย On May 23, 2019, the U.S. House of Representatives passed, by a 417 to 3 margin, the โSetting Every Community Up for Retirement Enhancement Actโ (the โSECURE Actโ). 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 โ in part to facilitate โopen MEPsโ (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 โ doing so is beyond the power of the DOL to accomplish through its regulatory power alone.
Effective Date.ย 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.