IRS proposes to relax the “One Bad Apple Rule”

A multiple-employer plan (MEP) is an employee benefit plan maintained by two or more employers. Many such plans are sponsored by companies that are not members of a common control group but do have a degree of common ownership. There is also the so-called “Open MEP” arrangement that allows completely unrelated employers, usually small businesses, to create a single 401(k) plan in the hopes of achieving better pricing on administrative and investment fees, as well possibly reducing the fiduciary responsibility that comes with maintaining a single plan.

However, thoughtful employers have been reluctant to join Open MEP arrangements because of concerns with U.S. Department of Labor (Department) and Internal Revenue Service (IRS) regulations. As an aside, the IRS has authority with respect to the tax status of retirement plans while the Department enforces the employee protection aspects of the Employee Retirement Income Security Act of 1974 (ERISA).

The first obstacle is that the Department has long considered an Open MEP not to be one plan for ERISA reporting and disclosure purposes, rather the Department considers many of these arrangements to be a collection of single-employer plans that are using a common administrative and funding platform. In the Department’s view, an Open MEP does not meet the requirement for a multiple-employer plan to be one plan for reporting purposes. To be one plan, the plan must be for a bona fide group or association of employers acting in the interests of its employer members to provide benefits to their employees.

To read the full article from RSM, click here.

Author:

Bill O’Malley – Senior Director