Pension & Benefits News EBSA final regs expand multiple employer plan access to small businesses
Monday, August 26, 2019

EBSA final regs expand multiple employer plan access to small businesses

By Pension and Benefits Editorial Staff

The Employee Benefits Security Administration (EBSA) has released final regulations that expand access to affordable quality retirement saving options by clarifying the circumstances under which an employer group or association, or a professional employer organization (PEO), may sponsor a multiple employer workplace retirement plan under Title I of ERISA.

Under the final regulations, employer groups or associations and PEOs can, when satisfying certain criteria, be “employers” within the meaning of ERISA Sec. 3(5) for purposes of establishing or maintaining an individual account “employee pension benefit plan” under ERISA Sec. 3(2). Thus, a group or association, or PEO, can sponsor a defined contribution retirement plan for its members, and make it easier for small businesses to offer retirement savings plans through Association Retirement Plans (ARPs).

The final regulations are effective September 30, 2019. EBSA explains that the final regulations only address sponsorship of a MEP by either a group or association of employers, or by a PEO, and are limited to defined contribution plans, as defined by ERISA Sec. 3(34).

Why is being an “employer” important?.  As an “employer,” a group or association, as well as a PEO, can sponsor a defined contribution retirement plan for its members—commonly known as “multiple employer plans” (MEPs). Thus, different businesses may join a MEP, either through a group or association or through a PEO. The final regulations also permit certain working owners without employees to participate in a MEP sponsored by an employer group or association.

Under the final regulations, ARPs can be offered by associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide. Retirement plans can also be sponsored by PEOs (human-resource companies that contractually assume certain employment responsibilities for its client employers).

By expressly permitting these new plan arrangements, the regulations enable small businesses to offer benefit packages comparable to those offered by large employers. The Department of Labor (DOL) expects the plans to reduce administrative costs through economies of scale and to strengthen small businesses’ position when negotiating with financial institutions and other service providers.

Who is impacted?. The final regulations primarily affect groups or associations of employers, PEOs, plan participants, and plan beneficiaries. The regulations do not affect whether groups, associations, or PEOs assume joint-employment relationships with member-employers or client employers. But it may affect banks, insurance companies, securities broker-dealers, record keepers, and other commercial enterprises that provide retirement plan products and services to ERISA plans and plan sponsors.

Expanding access. The final regulations facilitate the adoption and administration of MEPs and, thus, expand access to workplace retirement plans, especially for employees of small and mid-size employers and for certain self-employed individuals, according to EBSA.

The DOL had previously issued subregulatory guidance interpreting ERISA Sec. 3(5) that took a narrow view of the circumstances under which a group or association of employers could band together to act “in the interest of” employer members in relation to the offering of retirement savings plans. EBSA stated that these regulations supersede any preexisting subregulatory interpretive rulings under ERISA Sec. 3(5) pertaining to bona fide groups or associations of employers and, at the same time, establishes more flexible standards and criteria for sponsorship of MEPs than currently articulated in that prior guidance. The final regulations do not affect existing auto-enrollment options and other features that make defined contribution plans attractive for employers. The regulations also have no superseding effect on Interpretive Bulletin 2015-02), which addressed state savings programs designed to expand retirement savings options for private-sector employees.

Open MEPs. The Department has chosen to retain nearly the same criteria for these MEPs that were proposed. One subject generating public comments concerned “open MEPs.” EBSA had requested comments on “open MEPs,” which generally are defined contribution retirement arrangements that cover employees of employers with no relationship other than their joint participation in the MEP. After reviewing comments on this subject, the DOL has decided that open MEPs should be further considered and that more information is needed.

Because of differences in opinion on whether and how to permit open MEPs in the comments, as well as pending legislation in Congress, the DOL has decided to solicit comments on a broad range of issues related to open MEPs in a Request for Information for possible future rulemaking. The DOL is mainly soliciting comments on whether to amend its regulations to facilitate the sponsorship of “open MEPs” by persons acting indirectly in the interests of unrelated employers whose employees would receive benefits under such arrangements. The RFI also seeks comments on other issues raised by earlier commenters that were considered beyond the scope of the final association retirement plan regulations.

Comments should be submitted on or before October 29, 2019. Comments may be submitted by one of the following methods: Federal eRulemaking Portal:; Mail: Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, U.S. Department of Labor, 200 Constitution Ave. NW., Washington, DC 20210, Attention: 1210-AB92 “Open MEPs” and Other Issues Under Section 3(5) of ERISA.

PEOs. One area of the regulations that the DOL has decided to change is a safe harbor structure for PEOs. A bona fide PEO that may establish a MEP must meet several requirements, including performing substantial employment functions on behalf of its client employers. Whether a PEO satisfies this requirement is generally determined based on the facts and circumstances of the particular situation. However, a regulatory safe harbor is also provided for those who prefer more regulatory certainty. The proposed regulations had two safe harbors, one for certified PEOs and one for PEOs that were not certified PEOs. After receiving critical comments concerning the safe harbors, the DOL streamlined the safe harbor structure in the final regulations by providing one safe harbor for all PEOs. Instead of nine criteria, the new safe harbor contains only four criteria, and instead of allowing the PEO the choice of selecting five from among the nine criteria, the new safe harbor requires that the PEO satisfy all four criteria.

The new safe harbor provides that a PEO will be considered to perform substantial employment functions on behalf of its client employers under the following circumstances. First, the PEO assumes responsibility for and pays wages to employees of its client-employers that adopt the MEP, without regard to the receipt or adequacy of payment from those client employers. Second, the PEO assumes responsibility to pay and perform reporting and withholding for all applicable federal employment taxes for its client employers that adopt the MEP, without regard to the receipt or adequacy of payment from those client employers. Third, the PEO plays a definite and contractually specified role in recruiting, hiring, and firing workers of its client-employers that adopt the MEP, in addition to the client-employer’s responsibility for recruiting, hiring, and firing workers. Fourth, the PEO assumes responsibility for and has substantial control over the functions and activities of any employee benefits which the client contract with a client employer may require the PEO to provide, without regard to the receipt or adequacy of payment from the client employer for the benefits. All four of these criteria must be satisfied to meet the safe harbor.

SOURCE: DOL News Release No. 19-1401-NAT.

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