On October 22, 2018, the Department of Labor released a proposed regulation that clarifies (and in some regards expands) rules for which groups may adopt multiemployer plans (MEPs) under ERISA. In this article we provide a brief note on the proposal.
We begin with a discussion of the ERISAstatutory/regulatory issue that has made MEPs in some respects problematic.
Background – the MEP statutory/regulatory issue under ERISA
A MEP is a plan for employees of unrelated employers (other than a plan maintained pursuant to a collective bargaining agreement). Just who – what sorts of organizations – may maintain a MEP is an issue because, under ERISA, a retirement plan must generally be established by an “employer.” ERISAsection 3(5) defines employer as “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.”
Pursuant to (as DOL styles it) “subregulatory” guidance, DOL has taken the position a MEP may exist under ERISA “where a cognizable group or association of employers, acting in the interest of its employer members, establishes a benefit program for the employees of member employers.” In DOL’s view, “bona fide” MEPs may generally only be established where “the group or association has a sufficiently close economic or representational nexus to the employers and employees … that is unrelated to the provision of benefits.” (Emphasis added.)
DOL’s analysis as to what sorts of organization may establish a MEP “has focused on three broad sets of issues …: (1) whether the group or association is a bona fide organization with business/organizational purposes and functions unrelated to the provision of benefits; (2) whether the employers share some commonality and genuine organizational relationship unrelated to the provision of benefits; and (3) whether the employers that participate in a plan, either directly or indirectly, exercise control over the plan, both in form and substance.”
In recent years, there has been a movement in support of an expansion of the availability of MEPs and in support of (in effect) provider-based “Open MEPs” – multiple employer plans that are operated by, e.g., financial services institutions or recordkeepers, providing a retirement plan “solution” for adopting employers. Generally, however, a provider-based Open MEP would flunk the three DOL “tests” for a bona fide MEP described above – business purpose unrelated to the provision of benefits; commonality of interest; and employer-sponsor control.
DOL did not, in this new proposal, authorize Open MEPs, explainingthat it “considered, but decided not to include [Open MEPs] … because they implicate different policy concerns.” DOL does, however, solicit public comment on this issue.
Instead, the proposal more fully articulates, in the form of a regulation, the three “subregulatory” principles that DOL currently applies (described above). To be a “bona fide group or association of employers” that can offer a MEP to its members, the group or association of employers must meet all of the following requirements:
The group or association “must have at least one substantial business purpose unrelated to offering and providing MEP coverage.” Such unrelated purpose might include “promoting common business interests of its members or the common economic interests in a given trade or employer community” and need not be a for-profit activity. (Thus, it appears a trade association would qualify.)
The employer members must have a “commonality of interest.” Commonality of interest is defined as employers that are either (1) in the same trade, industry, etc. or (2) in the same region of a single State or metropolitan area.
The group or association must be controlled by its employer-members, and the employer-members that participate in the plan must control the plan.
In addition: each member-employer must have at least one employee who is a plan participant; the group or association must have a formal structure, with a governing body, by-laws, etc.; and plan participation must be limited to employees and former employees of employer members.
Finally, the group or association may not be “a bank or trust company, insurance issuer, brokerdealer, or other similar financial services firm (including pension record keepers and third-party administrators).”
A couple of observations: The only real innovation in this proposal is that the “commonality of interest” requirement may be satisfied by limiting membership to employers located in the same region of a single State or metropolitan area. Other than that feature, the regulation seems generally targeted at trade associations. And, since financial institutions are banned from providing a MEP under this proposal, it is unclear who, other than state and city governments themselves, could provide these “regional” MEPs.
PEOs and gig MEPs
There are two other features of the proposal that are new but don’t relate directly to employer-based MEPs. First, the proposal would clarify the treatment of plans maintained by a professional employer organization (“PEO”) (defined as “a human-resource company that contractually assumes certain employer responsibilities of its client employers”).
And second, the proposal provides that a “working owner” (that is, someone who is not a common law employee) “may qualify as both an employer and as an employee” for purposes of the MEP requirements described above. This provision is designed to permit those working in the “gig” economy to participate in a MEP. To repeat (though), since financial institutions, recordkeepers and TPAs are prohibited from providing MEPs, a “gig” MEP (e.g., one targeted at rideshare drivers) would have to be provided by someone who is not in the business of providing retirement plan services – a trade or gig-driver association or (conceivably) the rideshare operator itself. It will be interesting to see whether such a MEP will emerge.
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We will continue to follow this issue.