Insight Possible Peril in Outsourcing Your Retirement Plan

The DOL recently ruled that an employer who adopts a plan maintained for a group of unrelated and unaffiliated employers (known as an open multiple employer plan or a MEP) must separately comply with ERISA’s reporting, disclosure, and fiduciary requirements.

Qualified retirement plans such as 401(k) plans are governed by the Internal Revenue Code (Code) and by the Employee Retirement Income Security Act (ERISA). These two laws are enforced by the IRS and DOL, respectively. In some situations the IRS and the DOL take different approaches in regulating the same retirement plan, which can create traps for an unwary employer. This issue came up when the DOL concluded that each employer that adopts a qualified retirement plan sponsored by multiple “unrelated” employers must comply separately with the reporting, disclosure and fiduciary requirements under ERISA.

These MEP structures are often adopted by a collective of unrelated and unaffiliated employers to control retirement plan costs and simplify administration. Although the IRS treats a MEP as a single qualified retirement plan for tax qualification purposes, employers that participate in these MEP arrangements should be aware that the DOL takes a different view. The DOL concluded in Advisory Opinions 2012-03A and 2012-04A that each participating employer of a MEP must comply separately with various ERISA requirements such as the Form 5500 filing requirements, audit requirements, fee disclosure requirements, and fiduciary duty requirements.

Employers should keep in mind that many qualified retirement plans maintained by “related” employers will not be impacted by this ruling. The ruling does not apply to related companies under common ownership and control (as defined in the Code) or companies that are part of the same affiliated group of companies (even if they do not satisfy the common ownership requirements of the Code). However, if your company has adopted a retirement plan that has also been adopted by other unrelated employers for the sole purpose of outsourcing retirement plan administration, this ruling may impact you.

For more information please contact a member of our Employment Group or call 208.344.6000.