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Recent Multiple Employer Plan Rule Changes Could Benefit Small Businesses
Last Updated: March 16, 2016
A multiple employer plan (MEP) is a single plan that is adopted by several employers who are not under the same corporate ownership umbrella. Historically, in order to establish a multiple employer plan, all of the employers joining the plan must share a “common nexus.” This means that they must be in some way related to each other, for example, by doing business in the same industry. Two unrelated businesses are not allowed to sponsor a multiple employer plan together.
The benefit of a group of employers joining a single multiple employer plan is a matter of scale. For a single small business, sponsoring its own 401(k) plan may be very expensive because of the administrative burden, the small number of participants, and the small amount of assets that would be in the plan. However, if ten small businesses joined a multiple employer plan, their cumulative assets would allow them to command more negotiating power and to maintain a retirement plan for their employees in a much more affordable way.
Toward the end of 2015, the Department of Labor (“DOL”) issued Interpretive Bulletin 2015-02.[1] In this bulletin, the DOL did what appears to be a 180 with respect to their “common nexus” requirement for state-sponsored multiple employer plans. According to the DOL, a state may sponsor its own multiple employer plan and allow unrelated private businesses to join. The justification for this policy reversal is that a state government has
“a unique representational interest in the health and welfare of its citizens that connects it to the in-state employers that choose to participate in the state MEP and their employees, such that the state should be considered to act indirectly in the interest of the participating employers.”If you feel as though the “health and welfare” argument above is at least a little bit of a stretch, you’re not alone. However, this action by the DOL may be a signal of future changes that would eliminate the “common nexus” requirement for privately sponsored multiple employer plans. This type of change, although currently hypothetical, would allow a group of unrelated employers to join together to sponsor a single retirement plan at a reasonable cost to their employees. The DOL clearly wants to give small business employees access to affordable retirement savings vehicles. If they were willing to essentially do away with the “common nexus” requirement for state-sponsored MEPs, it’s not unreasonable to think that similar changes will be made to allow private sector MEPs in the future. If you have questions about how regulatory changes by the Department of Labor may impact you as a plan sponsor, contact our ERISA Services Team or call 800-234-9584. [1] 29 CFR 2509.2015-02
