By Pension and Benefits Editorial Staff
The Department of Labor’s Employee Benefits Security Administration (EBSA) has released proposed regulations intended to 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)—a human-resource company that contractually assumes certain employment responsibilities for its client employers—may sponsor a workplace retirement plan. The proposal would clarify that employer groups or associations and PEOs can, when satisfying certain criteria, be considered “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,” an employer group or association would be able to sponsor a defined contribution retirement plan for its members, as would a PEO sponsor a plan for client employers (collectively, multiple employer plans (MEPs)). The proposed regulations would permit 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.
EBSA said the proposal would primarily affect groups or associations of employers, PEOs, plan participants, and plan beneficiaries. EBSA noted that the proposal would not affect whether groups, associations, or PEOs assume joint employment. However, the proposal may affect banks, insurance companies, securities broker-dealers, recordkeepers, and other commercial enterprises that provide retirement-plan products and services.
Notably, the proposed rule would prohibit an employer group or association from being a bank, trust company, insurance issuer, broker-dealer, or other similar financial-services firm (including pension recordkeepers and third-party administrators) and from being owned or controlled by such a financial-services firm.
Association Retirement Plans. In a press release, the Labor Department described the regulatory action as one that would make it “easier for small businesses to offer retirement savings plans to their workers through Association Retirement Plans, which would allow small businesses to band together to offer 401(k) plans to their employees.” “Association Retirement Plans could be offered by associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide. Sole proprietors, as well as their families, would also be permitted to join such plans.”
“Many small businesses would like to offer retirement benefits to their employees but are discouraged by the cost and complexity of running their own plans,” Secretary of Labor Alexander Acosta said. “ Association Retirement Plans give these employers a simple and less burdensome way to offer valuable retirement benefits to their employees. The proposed rule helps working Americans—and their families—take care of themselves in their retirement years.”
“By expressly permitting these new plan arrangements, the proposal would enable small businesses to offer benefit packages comparable to those offered by large employers.” The DOL expects these plans to reduce administrative costs through economies of scale and to strengthen small businesses’ position when negotiating with financial institutions and other service providers.
Criteria.Specifically, the proposed regulations provide seven criteria for determining whether a group or association of employers is a “bona fide” group or association of employers for purposes of ERISA Sec. 3(5) and the regulations. Four of the criteria provide that the group or association must have a formal organizational structure, be controlled by its employer members, have at least one substantial business purpose unrelated to offering and providing employee benefits to its employer members, and limit plan participation to employees and former employees of employer members. Two other criteria provide that employer members must have a commonality of interest and that each employer must act directly as an employer of at least one employee participating in the MEP. The intent of including these criteria is to distinguish between groups and associations that act as employers within the meaning of ERISA Sec. 3(5), from other entities that do not act as an “employer.”
Under the proposed regulations, four criteria must be met for a PEO to qualify as a “bona fide” PEO that may act “indirectly in the interest of [its client] employers” and, consequently, as an “employer” under ERISA Sec. 3(5) for purposes of sponsoring a MEP covering the employees of client-employers. Specifically, the proposal would require the PEO to perform substantial employment functions on behalf of the client employers, to have substantial control over the functions and activities of the MEP and assume certain statutory roles under ERISA, to ensure that each client-employer participating in the MEP has at least one employee who is a participant covered under the MEP, and to ensure that participation in the MEP is limited to current and former employees of the PEO and of client-employers, as well as their beneficiaries.
Comments. Interested parties may submit comments on the proposed rule by December 24, 2018. Comments may be submitted by one of the following methods: Federal eRulemaking Portal — http://www.regulations.gov; 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: Definition of Employer-MEPs RIN 1210-AB88.
SOURCE: DOL News Release, No. 18-1707-NAT.
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