The MEP/PEP Debate: Are We Better Together?
When we talk about retirement plans, many employers think of single employer retirement plans. A single employer retirement plan is simply a plan sponsored by one employer (or a related group of employers) for the benefit of its employees. In contrast, a multiple employer plan (MEP) is a retirement plan that is sponsored by two or more unrelated employers. Historically, MEPs have allowed employers, who may not have the resources to handle a retirement plan independently, to pool together to share the administrative burden of offering a retirement plan to their employees. Although they may sound similar, MEPs are not the same as multi-employer plans. A multi-employer plan is a collectively bargained plan maintained by more than one employer, usually within the same or related industries, and a labor union.
Prior to the enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act on December 20, 2019, all employers participating in the MEP had to share a nexus or common interest other than the retirement plan. The DOL had previously taken the position that if adopting employers did not share a common interest, the MEP was not considered to be a single plan for ERISA and Form 5500 purposes. The SECURE Act essentially reversed the DOL position by creating a new type of MEP, the Pooled Employer Plan (PEP). PEPs allow two or more unrelated employers who do not meet the regulatory commonality requirements to come together under one retirement plan.
Another welcome change provided under the SECURE Act is the elimination of the IRS' "one bad apple" rule. In the past, the IRS took the position that if one employer ran afoul of the IRS qualification requirements, the entire MEP could be disqualified. Eliminating the one bad apple rule shields participating employers from liability from failures of the actions of a non-compliant MEP member.
While there are similarities between MEPs and PEPs, there are also many fundamental differences. A few of the key features are contrasted below.
- Upcoming Compliance Deadlines for Calendar-Year Plans
- Terminated Employees? Important Relief is Here.
- Partial Plan Termination
- Qualified Disaster Distributions Extended
- Qualified Disaster Loans
- Paycheck Protection Program (PPP) Round 2
- Is there Pandemic Relief for Late Deposits?
- What is the deadline to deposit employee deferrals and loan repayments?
- Was relief provided due to the COVID-19 pandemic?
- What happens if deferrals were not deposited timely?
- What can be done to avoid late deposits in the future?
This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.