1.
Presented By
Adam C. Pozek,
DWC ERISA
Consultants, LLC Fun With MEPs
And
March 2013
Bob Toth
Law Offices of Robert J.
Toth, Jr.

2.
Obligatory Opening Disclaimer
THE VIEWS EXPRESSED BY THE SPEAKERS ARE THEIR OWN AND DO NOT
NECESSARILY REPRESENT THE VIEWS OF ANY PERSON, LIVING OR DEAD, REAL OR
FICTITIOUS, 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 1
A 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 2
DOL 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 3
W 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 4
D 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 5
E 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 6
A 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