What employers need to know about association retirement plans and efforts to expand access to multiple employer plans

Thompson Coburn LLP

Thompson Coburn LLP

According to March 2018 Bureau of Labor statistics, 23 percent of private sector, full-time employees in the U.S. do not have access to a workplace retirement plan.[1] The percentage without access to a workplace retirement plan increases to 32 percent when part-time employees are included. Many employers cite cost and a lack of administrative resources as obstacles to adopting retirement plans.[2]

The President has stressed the need to expand access to workplace retirement plans through arrangements such as multiple employer plans (MEPs). In an Executive Order, dated August 31, 2018, President Trump directed the Secretary of Labor to (i) clarify and expand the circumstances under which employers may sponsor or adopt a MEP, and (ii) issue proposed regulations that clarify when a group or association of employers can maintain a MEP.[3]

A MEP is a single qualified retirement plan maintained by more than one unrelated employers. Section 413 of the Internal Revenue Code of 1986, as amended (Code), addresses how the qualification requirements under Code Section 401(a) apply to a MEP.[4]

The Employee Retirement Income Security Act of 1974, as amended (ERISA), does not explicitly address MEPs. ERISA defines an “employee pension benefit plan” as a plan sponsored by an employer or employee organization that provides retirement income or defers income to termination of employment or beyond.[5] The term “employer” is defined to include any person acting “directly as an employer or indirectly in the interest of an employer in relation to an employee benefits plan”[6] and includes a group or association of employers acting for an employer. In the absence of explicit guidance, the DOL and the courts have applied a facts and circumstances approach in determining whether a MEP complies with ERISA.

On October 23, 2018, the Department of Labor (DOL) issued proposed regulations describing a new type of MEP, referred to as an association retirement plan. The proposed regulations also requested comments from practitioners and employers with respect to “open MEPs.” The proposed regulations were finalized on July 31, 2019 and the final regulations became effective on September 30, 2019.

Below are facts employers should know about association retirement plans and other efforts to expand access to MEPs.

Association retirement plans are not open MEPs

Prior to the issuance of final regulations on July 31, 2019, the DOL required a “sufficiently close economic or representational nexus” between unrelated employers and their employees, unrelated to the provision of benefits, to maintain a MEP.[7] This is sometimes referred to as a “closed MEP.”

In contrast, an “open MEP” is a retirement plan that covers employees of multiple employers with no relationship other than their joint participation in the MEP.

An association retirement plan is not an open MEP because (i) only a defined contribution plan can be an association retirement plan, and (ii) an association retirement plan can only be maintained by a bona fide group or association of employers or a bona fide professional employer organization (PEO).

Bona fide groups or associations of employers may sponsor association retirement plans

A bona fide group or association of employers may offer an association retirement plan. A group or association of employers will be considered “bona fide” if the following requirements are satisfied:

  • The group or association has at least one substantial business purpose unrelated to offering and providing MEP coverage. A substantial business purpose exists if the group or association would be a viable entity in the absence of sponsoring an employee benefit plan.
  • Each employer of the group or association is acting directly as an employer of at least one employee covered under the MEP.
  • The group or association has a formal organizational structure with a governing body and bylaws.
  • The activities of the group or association are controlled by its employer members and the members of the group or association that participate in the MEP control the MEP.
  • Employer members have a commonality of interest.
  • Only employees and former employees (and their beneficiaries) of employer members of the group or association can participate in the MEP.
  • The group or association is not a bank or trust company, insurance issuer, broker-dealer, other similar financial services firm or affiliate thereof.[8]

A broader commonality of interest test applies to bona fide groups or associations of employers

As noted above, the DOL historically required an economic or representational nexus among employers maintaining a MEP. The final regulations for association retirement plans set forth a broader test under which members of a group or association of employers will have commonality of interest if one of the following are true:

  • The employers are in the same trade, industry, line of business or profession; or
  • Each employer has a principal place of business in the same region that does not exceed the boundaries of (i) a single state or (ii) a metropolitan area (even if it crosses state lines).[9]

Bona fide PEOs may sponsor association retirement plans

The final regulations define a PEO as a human-resource company that contractually assumes certain responsibilities on behalf of employers.[10] The final regulations provide that a PEO is a bona fide PEO eligible to sponsor an association retirement plan if:

  • The PEO performs substantial employment functions for client employers that adopt the MEP and maintains adequate records relating to these functions.
  • The PEO has substantial control over the MEP as the plan sponsor, plan administrator and named fiduciary and continues to have obligations to MEP participants after termination of the contract with the client employer.
  • The PEO ensures that each client employer that adopts the MEP is acting directly as an employer of at least one employee covered under the MEP.
  • The PEO ensures that only employees and former employees (and their beneficiaries) of the PEO and client employers can participate in the MEP, including employees, former employees and beneficiaries of former client employers if they became participants during the contract period between the PEO and their employers.[11]

A safe harbor definition of “substantial employment functions” may be applied to PEOs

The final regulations provide that the determination whether a PEO is performing substantial employment functions for client employers will be based on the facts and circumstances. However, a PEO will be deemed to satisfy this requirement with respect to a client employer if the PEO:

  • Assumes responsibility for, and pays, wages to employees;
  • Assumes responsibility for, and reports, withholds and pays, applicable federal employment taxes of such employer;
  • Plays a role in recruiting, hiring and firing workers; and
  • Assumes responsibility for, and has substantial control over, employee benefits.[12]

The above requirements must be met without regard to the compensation the PEO receives from the client employer.

DOL is still considering open MEPs

When it issued the proposed regulations on association retirement plans, the DOL also requested comments on the advisability of open MEPs, i.e. a retirement plan in which the only commonality of employers is participation in the MEP itself. It received approximately 60 comments, the majority of which viewed open MEPs favorably. The DOL subsequently issued a request for information that included, among others, the following questions:

  • Should the DOL permit open MEPs and, if so, why?
  • What organizations should be permitted to establish and maintain open MEPs?
  • If a commercial entity sponsored an open MEP, what conflicts of interest might arise and would a prohibited transaction exemption be necessary to avoid violations of ERISA?
  • Should any conditions be placed on open MEPs similar to the commonality of interest requirement imposed on bona fide groups or associations of employers or the substantial employment functions requirement imposed on bona fide PEOs?
  • Do the potential costs and complexity resulting from applying certain qualification requirements to open MEPs (e.g., nondiscrimination) outweigh the benefits of open MEPs?
  • Should the DOL permit “corporate MEPs,” i.e., defined contribution plans that cover employers in different industries that are related by some level of common ownership but do not qualify as a controlled group?


The interest in expanding access to MEPs is not limited to the DOL. On July 3, 2019, the Internal Revenue Service issued a proposed regulation outlining an exception to the “unified plan rule” (also referred to as the “one bad apple rule”) whereby a qualification failure by one employer would not disqualify a MEP. On May 23, 2019, the House of Representatives overwhelmingly approved the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) which permits open MEPs. At this time, it is not clear whether the Senate will take action on the SECURE Act by year-end. Nevertheless, these efforts from various governmental sources suggest that continued expansion of access to MEPs may be on the horizon.

[1] U.S. Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in the United Sated, March 2018 (https://www.bls.gov/ncs/ebs/benefits/2018/employee-benefits-in-the-united-states-march-2018.pdf).

[2] The Pew Charitable Trusts, Employer Barriers to and Motivations for Offering Retirement Benefits, (June 2017) (http://www.pewtrusts.org/-/media/ assets/2017/09/

[3] https://www.whitehouse.gov/presidential-actions/executive-order-strengthening-retirement-security-america/

[4] Certain qualification requirements under the Code (e.g., eligibility, exclusive benefit rule and vesting) are applied as if the unrelated employers are a single employer. Other qualification requirements (e.g. coverage and nondiscrimination testing) are performed by each of the unrelated employers as if it maintained a separate plan for its employees. IRC §413(c).

[5] ERISA §3(3).

[6] ERISA §3(5).

[7] 84 F.R. 37511.

[8] §2510.3-55(b)(1)

[9] §2510.3-55(b)(2)

[10] §2510.3-55(c)(1)

[11] Id.

[12] §2510.3-55(c)(2)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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