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The Multiple Employer Plan: An Excellent Tool For Employers To Expand Retirement Plan Coverage
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Many small to mid-size retirement plan sponsors have been looking for a solution to understanding the complex regulatory and compliance challenges associated with 401(k) plans. Recently, they have begun embracing the long-established concept of multiple employer plans as a solution to these issues.
A Multiple Employer Plan (MEP) is a retirement plan in which two or more unrelated employers no longer remain as plan sponsors. Instead they transfer many of their administrative burdens and fiduciary liabilities to an independent third party. One should not confuse a MEP with Multi-employer pension plan (MEPP) or Multiple Employer Welfare Arrangement (MEWA), as they are unrelated to the MEP 401k plan structure.
MEP retirement plans came into existence a long time ago, but due to the absence of guidance from Internal Revenue Service (IRS), which has control over the tax status of retirement plans and Department of Labor (DOL), which protects the participant according to Employee Retirement Income Security Act (ERISA), small and mid-size firms are not well versed with this concept. MEPs are very well established among larger and professional organizations and have been for many years.
Types of Multiple Employer Plans
We can broadly classify MEPs into three basic types:
• The first type is sponsored by a Professional Employer Organization (PEO), which offers it to their clients;
• The second type is sponsored by a trade group or association for their members;
• The third type is co-sponsored by employers who are not related to each other than that they share a common retirement plan (an “Open MEP”).
Benefits of a MEP for an Employer
An employer enjoys many benefits from this type of plan such as the elimination of most plan sponsor functions. A MEP adopting employer does not need to file a Form 5500 or take the responsibility of ERISA 408(b)(2) compliance. These responsibilities are taken care of by the MEP plan sponsor.
Risks involved with a MEP
• The DOL and the IRS are the two major government entities who can decide whether a particular plan is a tax qualified MEP. Either of them can also fine an employer for not filing an annual Form 5500 or for other compliance or regulatory violations.
• It is mandatory for a MEP employer to cover his employees properly as required by the plan. Failure to do so can lead to the plan sponsor being fined or on a worse case basis, being disqualified.
• There are some necessary ERISA requirements in the plan for which the adopting employer remains responsible for.
Many business owners believe in doing things they are best at, and to outsource other duties. There is growing trend for MEP employers for “401(k) outsourcing”, because it gives them decreased liability and increased services and protection. For many employers, a MEP is the best type of retirement plan to allow them to focus on running their businesses.
Contact me at tpower@ThePlatinum401k.com or at 813.774.3366 for more information about multiple employer Retirement Plan solutions. We've worked with multiple employer plan clients for over 25 years and are the industry leader in this niche field. We work with advisers and clients all over the country to reduce cost and employer liability. There's more information available on our website at www.ThePlatinum401k.com.
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