Multiple Employer Plans: Proposed IRS Regulations Eliminate the “One Bad Apple” Rule -

A multiple employer plan (MEP) is a tax qualified retirement plan that is maintained by two or more employers who are not part of the same group of controlled corporations. The IRS rules governing MEPs provide that “the failure by one employer maintaining the plan (or by the plan itself) to satisfy an applicable qualification requirement will result in the disqualification of the MEP for all employers maintaining the plan.” This “one bad apple” rule creates a disincentive for small employers who may otherwise consider offering retirement benefits under a MEP.

On August 31, 2018, President Trump issued an Executive Order directing the Secretary of the Treasury to consider amendments to regulations or other guidance “regarding the circumstances under which a MEP may satisfy the tax qualification requirements . . . , including the consequences if one or more employers that sponsored or adopted the plan fails to take one or more actions necessary to meet those requirements.” In response to the Executive Order and the policy of expanding workplace retirement plan coverage, the IRS developed proposed regulations which would provide an exception to the “one bad apple” rule for certain defined contribution MEPs; the proposed regulation does not address defined benefit MEPs.