Employers Could Ease Plan Costs Under Open MEP Proposal



The Obama administration announced on the White House blog that it intends to propose legislation that would allow employers to join “open multiple employer plans.”  

The blog post, written by Labor Secretary Thomas E. Perez and Jeffrey Zients, director of the National Economic Council and assistant to the President for economic policy, included several initiatives aimed at helping workers save for retirement.  

Chief among those initiatives is legislation allowing open MEPs, where two or more unrelated employers may form pooled 401(k) plans, aimed at achieving lower costs and less administrative burden for each employer. 

Open MEPs are not considered qualified plans under the Employee Retirement Income Security Act, but traditional MEPs, those where employers share a “common bond,” are allowed to form a pooled retirement plan under ERISA.

President Barack Obama will propose to remove the “common bond” requirement in his 2017 budget, enabling employers to take advantage of open MEPs.

“The Administration’s proposal to remove the ‘common bond’ or nexus requirement currently applicable to plans sponsored by multiple employers that are not members of the same controlled group (within the meaning of Code section 414) would pave the way for unrelated employers to create a ‘buying group’ for qualified retirement plan services resulting in greater economies of scale and lower costs for all participant employers,” Erin Turley, a partner with McDermott Will & Emery, told Bloomberg BNA.  

The language change would potentially allow more small businesses to offer cost-effective plans to their employees, while certain nonprofits and other intermediaries could create pooled plans for contractors and other self-employed workers, the blog post said.  

“The open ‘multiple employer plan’ could similarly alleviate much of the administrative burden currently placed on the individual plan sponsor,” Turley said.  

Under open MEPs, independent contractors and employees moving between employers participating in the same open MEP can continue contributing and receiving employer contributions to the same plan, even if they switch jobs. 

“However, without significant revision to existing rules under the Code and ERISA, the open ‘multiple employer plan’ still presents many compliance challenges for the individual plan sponsor including eligibility and vesting rules which currently treat the open multiple employer plan as a single plan for all participating employers,” Turley said.  

Previous guidance provided that the DOL views open MEPs as a collection of individual employer-sponsored plans and not a single plan under ERISA.  See related story, DOL Has Spoken: What's Next for Open MEPs?

In Nov. 2015, the DOL indicated a shift in policy when they issued guidance on state-run open MEPs in Interpretive Bulletin 2015-02 (RIN 1210-AB74). The guidance relaxed, for states only, prior rules that required participating employers to share a common employment-based nexus or other genuine organizational relationship unrelated to the provision of benefits. See related story, DOL Opens the Door for State-Run Retirement Initiatives.

“Consumers and employers are currently at a disadvantage, where the private market is not permitted to compete with valuable alternatives to State-run programs," benefits attorney Robert J. Toth of the Law Office of Robert J. Toth LLC in Fort Wayne, Ind., told Bloomberg BNA.

"Permitting the marketplace to compete with the States, allowing providers to design and implement innovative programs, can only serve to increase retirement coverage,” Toth said. 

See related story, Obama Sets Sights on Increasing Retirement Plan Access.

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