Multiple-Employer Plans (MEPs) are retirement plans designed to cover employees of two or more unrelated employers. These plans allow small businesses and organizations to pool their resources and offer retirement benefits to their employees collectively, thereby achieving economies of scale and potentially reducing administrative costs.
MEPs can take different forms, but the most common types are:
Pooled Employer Plans (PEPs):
PEPs are a type of MEP created under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was signed into law in December 2019. PEPs allow unrelated employers to join a single retirement plan that is administered by a pooled plan provider (PPP). The PPP takes on the administrative and fiduciary responsibilities for the plan, making it more straightforward for participating employers.
Multiple Employer 401(k) Plans:
These plans are 401(k) retirement plans where multiple employers participate. Each employer maintains its own separate account for its employees, but the overall plan is managed and administered jointly. This type of MEP is regulated under the Employee Retirement Income Security Act (ERISA).
Benefits of Multiple-Employer Plans:
- Cost Savings: By pooling resources, MEPs can achieve economies of scale, potentially reducing administrative and investment management costs for participating employers.
- Reduced Fiduciary Responsibilities: In PEPs, the pooled plan provider takes on many of the fiduciary responsibilities, relieving participating employers of some of the administrative burdens.
- Simplified Plan Administration: MEPs streamline administrative tasks, such as recordkeeping, compliance testing, and reporting, making it easier for small employers to offer retirement benefits.
- Access to Professional Management: Smaller employers may gain access to professional investment management and other retirement plan services that might be challenging to obtain individually.
- Increased Plan Flexibility: MEPs may offer a broader range of investment options and plan features than individual small employer plans.
- Retirement Savings Incentives: MEPs can provide employees with a convenient and consistent way to save for retirement, potentially boosting retirement savings rates.
Challenges of Multiple-Employer Plans:
- Common Interest Requirement: In some cases, MEPs may require participating employers to have a common interest or relationship to join, which may limit participation.
- Compliance and Reporting Complexity: Although MEPs aim to simplify administration, they can still involve complex compliance and reporting requirements, especially under ERISA.
- Potential Liability Sharing: If one participating employer in a MEP violates ERISA or other regulations, other employers in the MEP could potentially face liability or penalties.
- Limited Plan Customization: MEPs may offer limited flexibility for individual employers to tailor plan features to their specific needs.
It is essential for employers considering participation in a Multiple-Employer Plan to carefully evaluate the options available, understand the responsibilities and potential benefits, and consult with Matthew Jennings, JD, MBA, EA, RFC®, CEP®, CES™, aka Tax King Matt to ensure compliance with all relevant regulations and requirements.