What Is a Multiple Employer Plan (MEP)?
A multiple employer plan (MEP) is a retirement savings plan adopted by two or more employers that are unrelated for income tax purposes, as defined by the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL). The MEP can be a defined-benefit pension plan or a defined-contribution retirement plan such as a 401(k).
Each MEP is organized and run by an entity known as the MEP sponsor. The MEP sponsor is responsible for administrative duties and, in most cases, has fiduciary liability for the plan. Companies that join the MEP are known as “adopting employers.”
The MEP was created in order to encourage more small businesses to offer their employees a tax-advantaged retirement savings plan. Companies that don't have the resources or the bureaucracy to handle a retirement plan independently can pool together to share the burden.
- A multiple employer plan is an employee benefit offered by two or more unrelated employers.
- It is designed to encourage smaller businesses to share the administrative burden of offering a tax-advantaged retirement savings plan to their employees.
- Administrative and fiduciary responsibilities of the MEP are performed by a sponsor, which may be an employer, a trade group, or a third party.
Understanding the MEP
The concept of multiple employer plans dates to the early 20th century and was formalized by the Labor Relations Act of 1947, better known as the Taft-Hartley Act. At that time, it was largely aimed at permitting management and labor unions to come to agreements that applied across several employers in the same industry.
Today's multiple employer plans also allow small companies to band together to offer a retirement savings plan. Individually, a small company may not be equipped to handle the administrative costs, complexity, liability, and sheer paperwork involved in many plans.
Multiple employer plans and mutliemployer plans are not the same thing.
Types of Multiple Employer Plans
Initially, there were two main types of MEP, closed and open. A third type, the association retirement plan, was added in 2019.
A closed MEP is made up of more than one unrelated employer (with employees) and a sponsor that is a bona fide group, association, or organization with which member employers share a nexus or interest other than the retirement savings plan. Only member employers of the bona fide group can participate in the plan, and member employers must also be able to make plan-related decisions.
Association Retirement Plan
A relaxed form of the closed MEP, an association retirement plan (ARP) allows unrelated employers, as well as self-employed working owners, in different industries but with a physical presence in the same metropolitan area, region, or state, to join the same single-plan MEP. The rule also allows companies in the same industry, even if they don’t share a geographical connection, to join the same MEP.
Members have no connection with each other except for their participation in the same retirement savings plan. The open plan initially required each member company to have and report on its own individual plan. That changed at the beginning of 2020 with a new law, the SECURE Act, that allows for a single retirement plan for all members of an open MEP.
Sponsorship of a Multiple Employer Plan
The sponsor of an MEP may be any one of several entities:
- Board of directors. The board is appointed by the adopting employers to serve as plan sponsor and to appoint and monitor fiduciaries.
- Co-sponsorship. Each adopting employer is a co-sponsor of the plan. This structure is sometimes combined with a board of directors to ensure that adopting employers control the plan.
- Trade or industry group or association. Each of these can be considered an employer for ERISA purposes and is therefore eligible to sponsor the MEP. Local organizations such as a Chamber of Commerce may also be a sponsor.
- Third party. A professional employer organization (PEO) or a similar professional provider performs management tasks such as payroll, workers’ compensation, and training.
Multiple Employer Plan Vs. Multiemployer Plan
Not surprisingly, the two are often confused but there's a difference, at least in the eyes of the Department of Labor.
- A multiple employer plan, as covered here, is a retirement savings plan maintained by two or more unrelated employers. The plan is a tax-advantaged plan, and thus must be administered in compliance with Internal Revenue Code (IRC) 413(c).
- A multiemployer plan is a collectively bargained plan between more than one employer, typically within the same or related industries, and a labor union. Multiemployer plans are often called Taft-Hartley plans and must comply with IRC 414(f).