What is a Multiple Employer Plan ?
A multiple employer plan (MEP) is a retirement savings arrangement that allows multiple unrelated employers to participate in a single, shared pension or retirement plan. MEPs are designed to provide small and medium-sized businesses with an opportunity to offer their employees a cost-effective and efficient way to save for retirement. By pooling resources and participants from different companies, MEPs aim to achieve economies of scale, potentially lowering administrative and investment costs.
In a MEP, each participating employer maintains a separate account within the overall plan for their employees, and contributions are made on behalf of each individual participant. The plan is administered by a third-party entity, such as a professional retirement plan administrator or a financial institution, which takes care of record-keeping, compliance, and other administrative tasks. This arrangement allows employers to shift some of the fiduciary and administrative responsibilities associated with maintaining a retirement plan to the MEP sponsor.
How Does a Multiple Employer Plan Work ?
In a MEP, each participating employer maintains a separate account for their employees within the overall plan. Contributions are made on behalf of individual participants, and the plan is administered by a third-party entity, such as a professional retirement plan administrator or a financial institution.
1) Sponsorship and Establishment: A third-party entity, such as a retirement plan administrator or financial institution, sponsors and establishes the Multiple Employer Plan.
2) Employer Participation: Multiple unrelated employers, often small to medium-sized businesses, choose to participate in the MEP, contributing to a shared retirement savings arrangement.
3) Individual Accounts: Each participating employer maintains a distinct account within the MEP, facilitating the tracking of contributions and earnings specific to its employees.
4) Contributions and Benefits: Participating employers make contributions to the MEP on behalf of their employees, and these contributions are invested based on the MEP's available options.
5) Investment Management: The MEP sponsor oversees the investment management process, selecting and managing investment options within the plan to potentially achieve economies of scale.
6) Plan Administration: The MEP sponsor handles administrative tasks such as record-keeping, compliance monitoring, and reporting, relieving participating employers of some administrative burdens.
7) Economies of Scale: By pooling resources, the MEP aims to achieve cost savings in areas such as administration and investment management, benefiting all participating employers.
8) Fiduciary Responsibilities: The MEP sponsor typically assumes certain fiduciary responsibilities, helping to share the legal and regulatory burdens associated with maintaining a retirement plan.
9) Withdrawal and Termination: Procedures for joining, leaving, or terminating participation in the MEP are outlined in the plan document, specifying withdrawal conditions and any associated penalties.
10) Regulatory Compliance: MEPs must adhere to IRS and DOL regulations, ensuring legal compliance and providing participant protections within the retirement savings arrangement.
Types of Multiple Employer Plans
There are different types of Multiple Employer Plans, each with its own characteristics. Here are some common types:
1) Closed MEP (CMEP):
- Only certain employers or members of an association are eligible to participate.
- Closed MEPs are generally formed by employers who have a commonality, such as being members of a specific industry or trade association.
2) Open MEP (OMEP):
- Open to unrelated employers without any commonality requirements.
- This type of MEP allows diverse employers from different industries to join and share the benefits of a collective retirement plan.
3) Pooled Employer Plans (PEPs):
- Introduced by the Setting Every Community Up for Retirement Enhancement (SECURE) Act in the United States.
- Allows unrelated employers to participate in a single retirement plan while outsourcing plan administration and fiduciary responsibilities to a designated pooled plan provider (PPP).
4) Association Retirement Plans (ARPs):
- Created to allow small businesses to join together through associations to offer retirement plans to their employees.
- ARPs are a form of MEP that is designed to make it easier for small businesses to access retirement plan benefits.
5) Professional Employer Organization (PEO) MEPs:
- PEOs are companies that provide human resources and employment services to small and medium-sized businesses.
- PEO MEPs allow multiple businesses served by the same PEO to participate in a single retirement plan.
6) Corporate MEPs:
- Offered by a single employer that sponsors a retirement plan for its own employees but allows other businesses to participate.
- The primary employer is responsible for plan administration and compliance.
7) Master-Subsidiary MEPs:
- Involves a parent company (master) and its subsidiary companies (subsidiaries).
- All participating employers are part of the same controlled group, and the plan covers employees from the master and subsidiary companies.
What Regulatory Requirements Apply to Multiple Employer Plans?
Regulatory requirements for Multiple Employer Plans vary based on factors such as the type of plan, its structure, and the jurisdiction. In the United States, MEPs are subject to several regulatory frameworks and agencies. Here are some key regulatory requirements:
1) ERISA Compliance: Multiple Employer Plans (MEPs) must adhere to the Employee Retirement Income Security Act (ERISA) regulations, ensuring fiduciary duties, disclosure requirements, and plan governance are in accordance with federal standards.
2) IRS Qualification: MEPs must meet Internal Revenue Service (IRS) qualification standards to maintain tax-favored status, including rules related to plan contributions, distributions, and compliance with annual testing requirements.
3) DOL Reporting and Disclosure: Compliance with reporting and disclosure requirements set by the Department of Labor (DOL) is essential, including the filing of Form 5500 and providing required disclosures to plan participants and beneficiaries.
4) Non-Discrimination Testing: MEPs are subject to non-discrimination testing to ensure that benefits are not disproportionately favoring highly compensated employees, in accordance with IRS regulations.
5) Form 5500 Filing: The plan sponsor must file Form 5500 annually with the DOL, providing detailed information about the MEP's financial condition, operations, and compliance.
6) SPD and SMM Distribution: The Summary Plan Description (SPD) and Summary of Material Modifications (SMM) must be distributed to plan participants, providing comprehensive information about the plan's features and any material changes.
7) Pooled Plan Provider (PPP) Registration: Pooled Employer Plans (PEPs) under the SECURE Act must register with the DOL as a Pooled Plan Provider, meeting additional regulatory requirements.
8) State Regulations: Depending on the jurisdiction, state regulations may also apply to MEPs, covering areas such as reporting, disclosure, and other specific requirements.
9) Form M-1 Filings: MEPs may be required to file Form M-1 with the DOL, providing information about the plan and its operation as part of the regulatory oversight process.
10) Anti-Money Laundering (AML) Compliance: Plans that involve financial institutions may need to comply with AML regulations, implementing measures to detect and prevent money laundering activities.
11) Cybersecurity Protections: With the increasing focus on cybersecurity, MEP sponsors must implement measures to protect plan data and participant information, meeting regulatory expectations for data security.
12) Participant Notices: Providing required participant notices, such as the annual Safe Harbor notice and other notifications as specified by law, is essential for MEP compliance.
13) Fiduciary Duty Compliance: MEP sponsors and fiduciaries must act prudently, follow the plan documents, and fulfill their fiduciary duties in the best interests of plan participants, in line with ERISA requirements.
How to Apply for Multiple Employer Plan ?
Joining a Multiple Employer Plan typically involves several steps, and the process may vary based on the type of MEP and the specific provider. Here is a general guide on how to join a MEP:
1) Determine Eligibility: Confirm that your organization meets the eligibility criteria set by the Multiple Employer Plan (MEP) sponsor or administrator.
2) Contact MEP Administrator: Reach out to the administrator or sponsor of the MEP to express interest and gather information about the joining process.
3) Provide Necessary Information: Prepare and submit required details about your organization, including employee demographics and payroll data.
4) Review Plan Features and Cost: Carefully examine the features of the MEP, such as investment options, administrative services, and associated costs.
5) Complete Enrollment Paperwork: Fill out the necessary enrollment paperwork provided by the MEP, including documents related to plan participation and employee information.
6) Coordinate Payroll Contributions: Work with the MEP administrator to coordinate payroll contributions, ensuring a seamless transition for employee contributions.
7) Understand Compliance Obligations: Familiarize yourself with the legal and regulatory requirements associated with the MEP, understanding your compliance obligations.
8) Educate Employees: Communicate the changes to your employees, providing information about the MEP, its benefits, and any adjustments to the retirement plan structure.
9) Participate in Plan Governance: Understand your role in the governance structure of the MEP, whether involving employer input or delegating responsibilities to the plan administrator.
10) Monitor Performance: Regularly monitor the performance of the MEP, review statements, and periodically assess its alignment with your organization's needs. Consult legal and financial experts to ensure compliance with regulations and make informed decisions based on your organization's circumstances.
Pros of Multiple Employer Plan
- Cost Efficiency: Shared administrative costs among multiple employers can lead to cost savings.
- Reduced Fiduciary Responsibilities: Outsourcing fiduciary duties to a pooled plan provider can alleviate the burden on individual employers.
- Access to Expertise: Employers can benefit from the expertise of professional plan administrators.
- Economies of Scale: Larger asset pools may lead to improved investment options and lower investment expenses.
- Potential for Better Benefits: MEPs can provide attractive retirement benefits that might be challenging for smaller employers to offer individually.
Cons of Multiple Employer Plan
- Complex Compliance Requirements: MEPs may be subject to intricate legal and regulatory requirements.
- Limited Customization: Employers may have less flexibility in tailoring the plan to meet their specific needs.
- Risk of Contagion: Financial or compliance issues from one participating employer may affect others in the plan.
- Dependency on Pooled Plan Providers: Reliance on third-party administrators introduces dependence on their competence and reliability.
- Potential for Exit Challenges: Exiting a MEP may be more complex than terminating an individual plan due to shared responsibilities and assets.
FAQ's
Are MEPs suitable for all types of businesses?
MEPs are generally designed to benefit small and medium-sized businesses, but eligibility and suitability depend on various factors. Businesses should carefully assess their specific needs, regulatory considerations, and the terms of the MEP before deciding to participate.
Can participating employers customize their MEPs?
While MEPs provide a shared structure, participating employers often have some flexibility in customizing certain features of the plan to suit the needs of their workforce. However, customization options may vary depending on the MEP sponsor and the plan design.
How are contributions and investments managed in a MEP?
Contributions are made by each participating employer on behalf of their employees, and these contributions are invested in accordance with the investment options available within the MEP. The plan administrator oversees the investment management process.
What happens if an employer wants to leave a MEP?
The process for leaving a MEP can vary and is typically outlined in the plan document. Employers may need to communicate their intent to withdraw and may incur certain costs or obligations. It's important to review the withdrawal provisions and any associated penalties.
Are MEPs only for retirement savings, or can they include other benefits?
While MEPs are primarily designed for retirement savings, some plans may include additional benefits, such as healthcare or welfare benefits. The specific features of a MEP depend on the plan's design and the offerings provided by the MEP sponsor.