Benefits Byte

October 1, 2019

Council Supports Agency Efforts to Increase Access to MEPs

On September 30, the American Benefits Council provided written comments in support of proposed multiple employer plan (MEP) modifications easing the so-called “one bad apple” rule. The Council continues to advocate for legislative and regulatory proposals that expand access to workplace retirement accounts, and it has previously recommended the expansion of open MEPs and making changes to the “one bad apple” rule in its 2014 strategic public policy plan, A 2020 Vision: Flexibility and the Future of Employee Benefits.

Under the “one bad apple” rule, an entire MEP can be disqualified if any single employer in the MEP violates IRS qualification rules. The proposed regulations, published by the U.S. Department of Treasury and the Internal Revenue Service (IRS) on July 3, would create an exception to the rule for defined contribution MEPs provided certain actions are taken (see the July 3 Benefits Byte). 

In its comment letter, the Council provided recommendations on how Treasury and IRS can improve the proposed relief for MEPs and further reduce barriers for employers. The Council recommends that the Treasury and IRS:

  • Expand the proposed relief by eliminating the under examination condition.
  • Make relief available to 403(b) plans.
  • Make relief available to defined benefit plans.
  • Simplify the conditions for relief by accelerating the timeline for completing a spinoff when participating employers fail to take action, creating reasonable cause relief for plan administrators when implementing an employer-initiated spinoff, and permitting simultaneous spinoffs/terminations.
  • Provide additional guidance on the proposed relief by publishing model amendments and clarifying that certain beneficiaries are not subject to the proposed relief’s notice requirements.

The Council also requested a hearing on the proposed modifications and the opportunity to testify at the hearing.

In a related matter, the Council sent a letter to Preston Rutledge, assistant secretary for the U.S. Department of Labor (DOL) Employee Benefits Security Administration (EBSA) on the final MEP rules published by DOL/EBSA on July 31. These final rules expanded access to workplace retirement plans by clarifying when an employer group, professional employer organization (PEO), or association can sponsor an MEP under Title I of ERISA (see the July 31 Benefits Byte).

The Council expressed several concerns with language in the preamble of the rule, which discusses one commentator’s suggestion that the U.S. Department of Labor (DOL) create a “fiduciary checklist” to aid small employers. The commenter suggested the checklist “encourage or require employers to: (1) consider at least three plans; (2) examine how long the plan has been in existence; (3) review how many other employers and employees are actively enrolled;(4) consider the investment options and all employer and participant fees; and (5) receive and review a report on plan operations and periodically assess employee satisfaction and complaints at least annually.”

The Council’s letter to EBSA warned that requiring trade association MEPs to consider other plans or reexamine the history of a plan would not accurately reflect how MEPs currently work and would inaccurately describe the fiduciary process. The Council also cautioned against using a formulaic approach when requiring PEOs to consider other plans, stating PEOs require special attention when considering fiduciary responsibilities. A formulaic approach would likely be expensive for the PEO, and changes would be disruptive and costly for the participant. Finally, the Council noted that the existing DOL factsheet, Tips for Selecting and Monitoring Service Providers for Your Employee Benefit Plan, already provides sufficient guidance, eliminating the need for a checklist.

For more information on open MEPs or retirement plan regulation, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.