Multiple employer plans

[Belgarath]

Since this is a subject about which I know nothing, thought I'd solicit some opinions. Suppose you have a multiple employer plan. Under 1.413©-2, each employer is treated as having a separate plan for purposes of nondiscrimination testing. Now suppose company "y" fails.

If there is a disqualification, how does this work? Is the entire multiple employer plan disqualified? Doesn't seem reasonable... but what are the mechanics of leaving disqualified money in plan, or getting it out if there's a disqualification, etc.?

I'm not looking for specific cites - just some opinions from folks who may be more familiar with these issues! Thanks.

[mbozek]

I thought the IRS had gone on record stating that only the plan of the participating ER that failed the qualification requirements would be subject to sanctions or disqualification. The plans of the other employers in the multiple employer plan would not be affected.

[RTK]

I can't remember any specific statement by the IRS. For what it's worth, I do know that 413 regs state failure of one employer in a multiple employer plan to satisfy qualification requirements results in disqualification of plan for all employers. Also, the substantiation guidelines of rev proc 93-42 stated the same thing for multiemployer plans, but also stated that IRS has the authority to retain qualified status of mutliemployer plan for innocent employers.

[Belgarath]

Thanks. Actually, my initial reference wasn't on point - after reading these further, I believe I should have referenced 1.413-2(a)(3)(iv), and I think this confirms RTK's answer that disqualification of one disqualifies the rest. But these are old regs, and maybe as Mbozek says the IRS only disqualifies the applicable plan, which surely would be more logical.

P.s. Here's a reference I just found through CCH on the above. But it appears that you are at the mercy of the Service. Thank you both!

TD, PEN-RUL ¶23,034, COLLECTIVELY BARGAINED PLANS AND PLANS MAINTAINED BY MORE THAN ONE EMPLOYER , (Nov. 09, 1979)

However, in the rare case of total disqualification, hardship could result to the offending and nonoffending employers maintaining the plan. Although no exceptions to total

disqualification are provided in the final regulations, it is expected the Service’s administration of these provisions may shelter innocent and nonnegligent employers from some of the

harsh results of disqualification. Accordingly, in a proper case, the Commissioner could retain the plan’s qualified status for innocent employers by requiring corrective and remedial

action with respect to the plan such as allowing the withdrawal of an offending employer, allowing a reasonable period of time to cure a disqualifying defect, or requiring plan

amendments to prevent future disqualifying events.