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Fun with MEPs

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  • 1. Presented By Adam C. Pozek, DWC ERISA Consultants, LLC Fun With MEPs And March 2013 Bob TothLaw Offices of Robert J. Toth, Jr.
  • 2. Obligatory Opening Disclaimer THE VIEWS EXPRESSED BY THE SPEAKERS ARE THEIR OWN AND DO NOTNECESSARILY REPRESENT THE VIEWS OF ANY PERSON, LIVING OR DEAD, REAL ORFICTITIOUS, SHORT OR TALL, MALE OR FEMALE, RELIGIOUS OR ATHEIST, WITH A FULL HEAD OF HAIR OR…WELL, YOU GET THE POINT.NO PEOPLE OR ANIMALS WERE HARMED IN THE MAKING OF THIS PRESENTATION.
  • 3. Today’s Agenda A brief history Overview of THE opinion Current state of affairs Dealing with day to day issues Exiting a MEP Additional resources Slide | 3
  • 4. Part 1A B RIEF H ISTORY
  • 5. General Types of MEPs Association ◉ YWCA (See AO 81-44A) Not quite a controlled group Commonality ◉ Franchises, e.g. Dunkin Donuts (See AO 2005-20A) Professional Employer Organizations ◉ Rev. Proc. 2002-21 Open/Unaffiliated Slide | 5
  • 6. DC MEPs Interest among service providers re: forming MEPs for use by their clients ◉ Potentially cost-effective solution for small to midsized employers and start-up plans ◉ May provide more efficient administration model for TPAs to offer clients Still needed for affiliations that are not a controlled group ◉ Franchises, joint ventures, and other arrangements. Slide | 6
  • 7. Guidance IRC section 413(c) ERISA section 210 IRS Revenue Procedure 2002-21 40+ DOL Advisory Opinions ◉ Mostly MEWAs MD Physicians & Associates, Inc. v. Texas Board of Insurance, 957 F.2d 178 (5th Cir. 1992) Slide | 7
  • 8. The Million Dollar Question Is a multiple employer plan a single plan or a series of individual plans for each employer? ◉ If a single plan…  Only one Form 5500 needs to be filed; and  If the plan has more than 100 participants, only one audit needs to be done Slide | 8
  • 9. Part 2DOL A DVISORY O PINION 2012-04A
  • 10. That’s What The DOL Said… No two, unrelated employers may co-sponsor a single ERISA retirement plan unless those employers are… ◉ Members of a group with an "association" type of relationship, and ◉ Members of that association control the plan, directly or indirectly Determination of commonalty and control is based on existing guidance, including MEWA rulings Slide | 10
  • 11. Association MEPs No single MEP when members include non- employers (especially if non-employers can control the plan ◉ Participating entities must be employers or employee organizations ◉ Issue when owner-only company joins an otherwise appropriate association plan Slide | 11
  • 12. The Two Cs Commonality ◉ Participating employers must have a “common employment bond”  E.g., a group of YWCA chapters, which share close operating relationships separate from the participation in the MEP  Chambers of Commerce likely too broad Control ◉ Exercised either directly or indirectly by participating employers  May be problematic for PEOs Slide | 12
  • 13. Part 3W HERE A RE W E N OW ?
  • 14. So, What Do We Call These Things? Plan Formerly Known As MEP ◉ PFKAMEP Not A *#!% MEP ◉ NAFMEP Faux MEP ◉ FMEP Ex MEP ◉ XMEP Oops MEP ◉ O’MEP Slide | 14
  • 15. Advantages Professional compliance management by NAFMEP sponsor ◉ Fewer instances of the “I didn’t know that’s what the law required” Group buying power due to larger pool of assets ◉ Multiple employers share expenses that they would otherwise have to shoulder alone Slide | 15
  • 16. Advantages Less burdensome for employer ◉ Fewer plan administrative obligations = more time to spend on business FMEP sponsor or investment advisor chooses the investment options for participant-directed accounts ◉ Reduces (not eliminates) fiduciary responsibility of the adopting employer Slide | 16
  • 17. Disadvantages One bad apple ◉ Contractual provision requiring errant adopting employer to pay the costs of any error it causes:  Only as good as the ability and willingness of the promising employer to pay Bigger not always better ◉ The level of personal attention and service may be greater with a single employer plan administered by a professional TPA Slide | 17
  • 18. Disadvantages Loss of employer control with regard to… ◉ Selection of service providers ◉ Selection of investment options ◉ Termination of plan and subsequent asset distribution ◉ Amendment of the plan Employer may withdraw, but PFKAMEP sponsor needed to implement ◉ Terminate participation  Leave money in the plan until participants terminate employment; or  Spin off portion of XMEP to another XMEP or a single employer plan Slide | 18
  • 19. Part 4D EALING WITH D AY TO D AY I SSUES
  • 20. One Plan Or Multiple Plans? Yes ◉ Multiple plans under ERISA ◉ One plan for Code qualification Leads to some interesting disconnects in plan operation 414(l) and prohibited transaction problem ◉ 413(c) requires all assets of a plan be used for all benefits under the plan ◉ Comingling assets can only be accomplished in collective vehicles approved fro these purposes Slide | 20
  • 21. Trust/Custodial Arrangements Group trust ◉ Revenue rulings 81-100, 2004-67 and 2011-1  “…the group trust instrument must expressly limit participation in the group trust to pension, profit-sharing, and stock bonus trusts or custodial accounts qualifying under § 401(a) that are exempt under § 501(a), individual retirement accounts that are exempt under § 408(e), and eligible governmental plan trusts or custodial accounts under § 457(b) that are exempt under § 457(g) (adopting entities)…”  Does this mean each plan must have its own trust to join the group trust? 103-12 investment entity Slide | 21
  • 22. Trust/Custodial Arrangements Pooled separate account in group annuity contract ◉ Registered contracts ◉ Non-registered contracts Master trusts vs Common/Collective trusts ◉ Master trust for related employers ◉ Collective trusts for unrelated employers, and are specific entities under state laws ◉ Unitized accounting issues for 403(b) plans Slide | 22
  • 23. Plan Documents Single “master” document with joinder/participation agreements ◉ Volume submitter or individually designed ◉ Disgorgement features ◉ Allocation of responsibilities ◉ Plan design limitations Separate plan documents ◉ More likely to be pre-approved ◉ Create “custom” prototype/volume submitter ◉ Service provider can amend on behalf of sponsors Slide | 23
  • 24. Counting Service & Eligibility ERISA and the Code require crediting service with all employers who adopt a MEP; however, an FMEP is… ◉ A series of separate plans under ERISA, so section 210 does not apply ◉ A single plan under the Code, so 413(c) does apply Considerations depending on desired outcome ◉ Recognize service with all adopters in the plan document ◉ Use separate documents for adopters rather than “master” document approach Slide | 24
  • 25. Nondiscrimination testing Each employer tested separately ◉ Coverage ◉ General nondiscrimination ◉ ADP/ACP ◉ Comp ratio, if applicable ◉ Top heavy Slide | 25
  • 26. Form 5500 & IQPA Audit Separate forms for each plan ◉ Who signs?  Plan Administrator  Plan Sponsor Application of the 80-120 rule ◉ How did the plan file in the previous year?  Based on each separate plan or the entire MEP IQPA audit ◉ Must each plan be audited?  Maybe a single audit if using 103-12 investment entity  One filing for DFE and separate Schedules D for each plan No formal relief for previous filings Slide | 26
  • 27. Bonding A single bond can cover multiple plans ◉ See FAB 2008-04, Q&A 23 Bond amount must be at least equal to the sum of the required bond amounts for each underlying plan ◉ 10% of assets of each plan with $500,000 cap applied separately to each plan Slide | 27
  • 28. Form 8955-SSA SSA is required by the Code (section 6057) ◉ Single filing at XMEP level? For each plan subject to ERISA’s vesting provisions ◉ Separate filings for each plan? Slide | 28
  • 29. Delegation of Duties Plan Administrator defined in plan document ◉ Signs 5500, approves loans and distributions, etc. ◉ Standard allocation language in a plan typically not sufficient Responsible plan fiduciary ◉ Fee disclosure under 408(b)(2) and 404(a)(5) Slide | 29
  • 30. Audit Risk IRS/DOL use Forms 5500 to select plans for audit 1,000 adopting employers with separate 5500s = 1,000 opportunities for plan to be selected for audit ◉ Separate plans under ERISA, so DOL likely to look only at individual employer ◉ Single plan under the Code, so IRS could look at entire plan including all adopters Slide | 30
  • 31. Alternatives◉ MEPs serve to provide economies of scale in administration and investments, while providing professional fiduciary services.◉ These can be provided without a MEP by use of existing protocols under ERISA.◉ Pay close attention to the fiduciary allocation rules under ERISA Section 405(c).◉ “Responsibilities” document and plan language still key. Slide | 31
  • 32. Part 5E XITING A MEP
  • 33. Exiting Can you get out? ◉ Some MEPs limit the ability to exit Does employer wish to maintain a plan? ◉ Restate onto stand-alone plan document ◉ Spin-off agreement to transfer assets Can employees get their money? ◉ Likely no distributable event ◉ Spin-off then terminate What about abandoned plans? Slide | 33
  • 34. Part 6A DDITIONAL R ESOURCES
  • 35. Articles Multiple Employer Plans: The Enigma Demystified ◉ By Derrin Watson ◉ Journal of Pension Benefits, Edition 20.1 (October 2012) “Open” Multiple Employer Plans After Advisory Opinion 2012-04A ◉ By Bruce Ashton, Fred Reish and Joshua Waldbeser ◉ Journal of Pension Benefits, Edition 20.1 (October 2012) Slide | 35
  • 36. DOL Advisory Opinions (Not a complete list) 77-59A  81-51A  83-48A  89-17A  95-01A 78-4A  81-73A  83-53A  89-19A  95-22A 79-49A  82-17A  84-11A  90-01A  95-29A 80-42A  82-50A  84-17A  90-07A  97-23A 80-63A  82-59A  85-02A  90-19A  01-04A 80-68A  83-15A  85-22A  91-47A  05-20A 80-74A  83-21A  86-08A  92-04A  08-07A 81-44A  83-22A  86-26A  92-07A  12-03A 81-47A  83-41A  88-07A  94-07A  12-04A Slide | 36