Commonality for MEPs proposed for businesses in same state, municipality

The Labor Department’s proposal to increase sponsorship of workplace retirement plans by expanding access to multiple employer plans does not remove the existing commonality requirement for employers to join a MEP.

But it does significantly broaden the circumstances that determine whether employers have “sufficient commonality of interests” to pool employers under one defined contribution plan, according to the proposal, released today.

Under existing regulations, employers must share a common interest, or nexus, to benefit from the scale of economy and reduced liability under a MEP.

Under the proposal, employers that share a common trade, industry, line of business, or profession would satisfy the commonality requirement.

But so too would employers that share a principal place of business in the same state or metropolitan area.

In broadening employer eligibility for MEPs to include locality, the proposal introduces the prospect of chambers of commerce as sponsors of retirement plans for their members.

“Many well-established, geographically based organizations, such as local chambers of commerce, are strong candidates to sponsor MEPs,” the proposal says. But sub-regulatory guidance issued in 2012 restricted local chambers from sponsoring MEPs because they don’t satisfy a narrower commonality requirement issued under the Obama administration.

Professional Employer Organizations

The proposed rule also establishes four criteria that must be met for professional employer organizations, or PEOs, to qualify as a single employer MEP sponsor under the Employee Retirement Income Security Act.

PEOs, which provide human resource, benefits, and payroll services for employers, have expressed interest in sponsoring MEPs for their employer clients, but have been discouraged from doing so absent regulatory clarity, the proposal explains.

Under the proposal, PEOs would be able to sponsor a MEP if they perform “substantial employment functions,” have “substantial” control over a MEP, require client employers to have at least one employee enrolled in the MEP if the client is to participate, and limit participation to employer clients of the PEO firm.

No Open MEP policy—yet

The proposal was released less than two months after President Trump signed an executive order at an event hosted by the Charlotte, North Carolina Chamber of Commerce. The order directed the Labor Department to explore regulations that would broaden access to MEPs.

Ensuing speculation from industry expected Labor to pave access to so-called Open MEPs, which allow employers without a common business purpose, or regional association, to pool assets and employees under one defined contribution plan.

But the proposal stops short of expanding access to fully Open MEPs. “The Department considered, but decided not to include such categories of MEPs in the proposal because they implicate different policy concerns,” the proposal says.

Labor acknowledges the several legislative proposals that would establish Open MEPs, which include the Retirement Enhancement Savings Act and the Family Savings Act.

But regulators lack Congress’ authority to make new laws–the reason cited as to why the proposal differs from proposed legislation on Open MEPs.

“The Department’s proposal is more limited because it relies solely on the Department’s authority to promulgate regulations administering title I of ERISA,” the proposal explains. “Unlike the Department, Congress has authority to make statutory changes to ERISA and other areas of law that govern retirement savings, such as the Internal Revenue Code.”

Nonetheless, Labor is requesting comment on whether Open MEPs should be explored under the proposed regulation, or in a separate proposal.

Earlier guidance took ‘narrow view’ of ERISA language

The 2012 guidance issued by the Obama administration that limited access to MEPs “took a narrow view” of ERISA’s language concerning single employers and when an association of employers is acting “in the interest of” employer members, the proposal says.

That guidance was issued by then Assistant Secretary of Labor Phyllis Borzi, who did so shortly after a well-publicized instance of fraud on behalf of a Utah-based MEP provider, and several other occasions of fraud in multiple employer welfare plans.

Under the new proposal, most of single employers’ administrative and fiduciary responsibilities would be transferred to the administrators of MEPs. Participating employers would still have a fiduciary obligation to monitor MEP providers, and would be required to remit contributions in a timely fashion.

According to the Bureau of Labor Statistics, 23 percent of full-time private sector workers are without access to a workplace plan.

Clearly, President Trump’s Labor Department sees the potential upside of broader MEP participation—closing the workplace savings plan access gap—as outweighing concerns over neutering ERISA’s consumer protections.

In addressing the narrow interpretation of qualifying employers in the 2012 guidance, “the Department believes it could improve access to employer-sponsored retirement savings plans in America,” the proposal says.

Public comments are due to the Labor Department 60 days after the proposal’s publication in the Federal Register, expected this week.

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