A NON-TECHNICAL REVIEW OF QUALIFIED RETIREMENT PLAN LEGISLATIVE AND ADMINISTRATIVE ISSUES
THE MEP / PEP DEBATE : ARE WE BETTER TOGETHER ?
WHEN WE TALK ABOUT RETIREMENT PLANS , MANY EMPLOYERS THINK OF SINGLE EMPLOYER RETIREMENT PLANS . A single employer retirement plan is simply a plan sponsored by one employer ( or a related group of employers ) for the benefit of its employees . In contrast , a multiple employer plan ( MEP ) is a retirement plan that is sponsored by two or more unrelated employers . Historically , MEPs have allowed employers , who may not have the resources to handle a retirement plan independently , to pool together to share the administrative burden of offering a retirement plan to their employees . Although they may sound similar , MEPs are not the same as multi-employer plans . A multiemployer plan is a collectively bargained plan maintained by more than one employer , usually within the same or related industries , and a labor union .
Prior to the enactment of the Setting Every Community Up for Retirement Enhancement ( SECURE ) Act on December 20 , 2019 , all employers participating in the MEP had to share a nexus or common interest other than the retirement plan . The DOL had previously taken the position that if adopting employers did not share a common interest , the MEP was not considered to be a single plan for ERISA and Form 5500 purposes . The SECURE Act essentially reversed the DOL position by creating a new type of MEP , the Pooled Employer Plan ( PEP ). PEPs allow two or more unrelated employers who do not meet the regulatory commonality requirements to come together under one retirement plan .
Another welcome change provided under the SECURE Act is the elimination of the IRS ’“ one bad apple ” rule . In the past , the IRS took the position that if one employer ran afoul of the IRS
qualification requirements , the entire MEP could be disqualified . Eliminating the one bad apple rule shields participating employers from liability from failures of the actions of a noncompliant MEP member .
While there are similarities between MEPs and PEPs , there are also many fundamental differences . A few of the key features are contrasted below .
SIMILARITIES
• Participating employers are treated as a single employer for certain purposes , such as crediting of eligibility and vesting service and plan qualification purposes .
• Participating employers are treated as separate employers for coverage , non-discrimination , and top-heavy testing purposes , and employer deduction limitations .
• In most cases , only a single Form 5500 needs to be filed . The 5500 must include an attachment that lists all participating employers along with an approximate percentage of total contributions for the year and the account balances attributable to each .
DIFFERENCES
• MEPs are adopted by two or more unrelated employers that share a nexus or interest other than the retirement plan , while a PEP is adopted by unrelated employers that do not share a common interest .
• A MEP is made up of the MEP sponsor , or lead employer ,
BENEFIT INSIGHTS WINTER 2021