By Pension and Benefits Editorial Staff
The Employee Benefits Security Department (EBSA) has issued a proposed regulation that would 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 workplace retirement plan. The proposed regulation clarifies that employer groups or associations and PEOs can, when satisfying certain criteria, constitute “employers” within the meaning of ERISA Sec. 3(5) for purposes of establishing or maintaining an individual account “employee pension benefit plan” within the meaning of ERISA Sec. 3(2). As an “employer,” a group or association can sponsor a defined contribution retirement plan for its members, as can a PEO sponsor a plan for client employers (collectively referred to as “MEPs” unless otherwise specified).
According to Labor Secretary Alexander Acosta, this proposal would benefit small employers because “Association Retirement Plans give these employers a simple and less burdensome way to offer valuable retirement benefits to their employees.” By expressly permitting these new plan arrangements, the proposal would enable small businesses to offer benefit packages comparable to those offered by large employers, according to the Labor Department (DOL). The Labor Department expects the plans to reduce administrative costs through economies of scale and to strengthen small businesses' hand when negotiating with financial institutions and other service providers.
The proposed regulation would allow different businesses to join a MEP, either through a group or association or through a PEO. The proposal would also permit certain working owners without employees to participate in a MEP sponsored by a group or association. The proposal would primarily affect groups or associations of employers, PEOs, plan participants, and plan beneficiaries. The proposal would not affect whether groups, associations, or PEOs assume joint-employment relationships with member-employers or client employers. But the proposal may affect banks, insurance companies, securities broker-dealers, record keepers, and other commercial enterprises that provide retirement-plan products and services.
Under the proposal, an employer generally would be required to execute a participation agreement or similar instrument that lays out the rights and obligations of the MEP sponsor and the participating employer before participating. But these employers would not be viewed as sponsoring their own separate, individual plans under ERISA. Rather, the MEP, if meeting the conditions of the proposal below, would constitute a single employee benefit plan for purposes of title I of ERISA. As a result, the MEP sponsor —and not the participating employers—would generally be responsible, as plan administrator, for compliance with the requirements of title I of ERISA, including reporting, disclosure, and fiduciary obligations. This is true because the individual employers would not each have to act as plan administrators under ERISA Sec. 3(16) or as named fiduciaries under ERISA Sec. 402.
Under the EBSA proposal, an employer group or association or PEO would be acting as the “employer” sponsoring the plan within the meaning of ERISA Sec. 3(5). This means that, typically, the employer group or association or PEO would act as a plan administrator and named fiduciary and, thus, would assume most fiduciary responsibilities. A MEP under this proposal would be subject to all of the ERISA provisions applicable to defined contribution retirement plans, including the fiduciary responsibility and prohibited transaction provisions in title I of ERISA. As a plan that is maintained by more than one employer, the MEP would have to satisfy the requirements of ERISA Sec. 210(a).
SOURCE: 83 FR 53534.
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