PLANADVISER - September/October 2018 - 54

compliance consult
Open MEP Opportunities
A look at the compliance challenges, as well
PRESIDENT Donald Trump's executive order signed on
August 31, and efforts in Congress such as the Retirement
Enhancement and Savings Act of 2018 (RESA) are strong
indicators that open multiple employer plans or " open
MEPs " will become more attractive in the not too distant
future. The president and a number of prominent members
of Congress see open MEPs as a way to increase the availability
of 401(k) plans to more American workers, particularly
those who work for small employers.
The success of these plans will largely depend on the
nature of the guidance issued by the Department of Labor
(DOL) at the president's direction or that of any legislation
enacted by Congress. The 2014 ERISA [Employee Retirement
Income Security Act] Advisory Council, of which I was
a member, specifically looked at this issue in the context
of benefits outsourcing and encouraged the DOL to issue
guidance that would promote, rather than discourage, the
implementation of open MEPs.
Assuming the DOL or Congress takes appropriate action,
advisers may be in a position to offer small businesses an
efficient, cost-effective solution to providing retirement
benefits to their employees. In turn, advisers will likely be
required to assume some liability under the Employee Retirement
Income Security Act (ERISA) and act in accordance with
its fiduciary and prohibited transaction provisions.
For an open MEP to be most beneficial to employers, it
must be treated as a single plan for purposes of ERISA. Such
treatment allows most plan functions-both settlor and
fiduciary in nature-to be carried out by the lead sponsor,
which could be the adviser. In addition, the lead sponsor,
or a party or parties designated by the lead sponsor, acts
as the named fiduciary or fiduciaries to the plan, accepting
responsibility for plan administration, plan investments
and selection of service providers.
A single Form 5500 is filed on behalf of the plan, and the
plan is subject to a single audit by a certified public accountant
(CPA)-i.e., assuming the plan has more than 100
participants. Effectively, the participating employer's role is
limited to, first, determining whether to become a participating
employer and then to providing data and contributions
to the named fiduciary and trustee.
A significant barrier to the adoption of open MEPs has been
the DOL's interpretation of the definition of " employer " in
Advisory Opinion 2012-04A. In that opinion, the department
takes the position that, to have a single multiple employer
plan, there must be an " employment-based common nexus
or other genuine organizational relationship " between the
lead sponsor and " the employers of employees that benefit
from the plan, or among the different groups of employees
that participate in the plan. " This common nexus requirement
does not need to be fulfilled in an open MEP situation.
Presumably, in order to meet the stated goals of the
president's executive order, the DOL must change its views
on the common nexus requirement and allow open MEPs to
be formed for the primary purpose of providing retirement
savings and benefits.
The lead sponsors of open MEPs should assume they will
be fiduciaries in connection with the provision of an open
MEP. One of the DOL's key concerns about the plans is that
some lead sponsors of such arrangements may prove to be
bad actors. Indeed, the DOL has in the past used the term
" promoter " to describe sponsors of open MEPs. The agency
will likely want to indicate other fiduciaries to which participants
may turn in case a sponsor is a bad actor or is otherwise
unable to meet any liabilities it may incur by breaching
a fiduciary duty.
The agency may, therefore, require that participating
employers act as a fiduciary, in some respect, in regard to
joining the MEP. For example, the agency may state that such
employers have a fiduciary duty to prudently select a MEP
sponsor-e.g., a sponsor that is adequately insured or capitalized
and appropriately qualified to run such a plan. In the
long run, the attractiveness of open MEPs to small employers
may be dependent on how much of the fiduciary liability
those that participate may shift to the lead sponsor.
Additionally, open MEPs are more likely to succeed if the
participating employers are not held liable for each other's
acts. For example, the failure of one employer to send pretax
contributions in a timely way or to send properly determined
compensation could have implications under ERISA
and the federal tax code plan qualification provisions. All
of the participating employers potentially could bear such
compliance risks unless the DOL, IRS or Congress addresses
this issue.
In summary, advisers likely will have the opportunity to
sponsor open MEPs and make them available to their small
business clients; they also likely will be subject to ERISA, to
at least some extent.
David Kaleda is a principal in the fiduciary responsibility practice
group at Groom Law Group, Chartered, in Washington, D.C. He has
an extensive background in the financial services sector. His range of
experience includes handling fiduciary matters affecting investment
managers, advisers,
broker/dealers,
insurers, banks and service
providers. He served on the Department of Labor's ERISA Advisory
Council from 2012 through 2014.
54 | planadviser.com September-October 2018
Art by Tim Bower
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