Multiple-Employer Plan Situation

[Guest lvegas]

What is the effect of a participating employer of a multiple-employer plan choosing to withdraw from participation in such plan? Is this akin to a termination of a single-employer plan?

[JanetM]

You will first be wise to find out the funded status of the plan. If the plan is underfunded you will be liable for withdrawal liablility. Depending on which multi this is - the amount could be extremely large.

What MEP are you referring to?

[Guest lvegas]

It would not be appropriate for me to discuss the particular plan in question here.

Since I'm not sure of the funding status, let's assume that it is not underfunded.

[Guest BenefitsLawyer]

Although the terminology sometimes gets a little muddy, only multiemployer plans (not multiple employer plans) are subject to statutory withdrawal liability. A true multiple employer plan (no collective bargaining agreement that requires contributions to the plan) can create liability that is analogous to withdrawal liability by the terms of its plan document.

So, if this is really a multiple employer plan, the first place to look is the plan document.

[Guest lvegas]

Plan doc basically says that upon w/d, actuaries will determine the extent to which the employer must pay to cover benefits of its employees.

If post w/d, employer wanted its employees to be covered on a going-forward basis under employer 2's single-employer plan (and assuming employer 2 was willing to so amend), that would simply turn employer 2's single-employer plan into a multiple employer plan, right? Is there a reason why this wouldn't work?

[Kirk Maldonado]

BenefitsLawyer:

You stated that only multiemployer plans (not multiple employer plans) are subject to statutory withdrawal liability. How do you square this position with the language of ERISA Section 4064?

[Guest BenefitsLawyer]

Kirk: 4064 applies not to a withdrawal from a multiemployer plan, but to a termination of a multiple employer plan.

Ivegas: I'm not sure who is employer 2, so I can't answer.

[Guest lvegas]

Let me rephrase the question: is it difficult to convert a single-employer plan (that is not a PEO plan) into a multiple employer plan? What are the pitfalls, if any?

[Kirk Maldonado]

BenefitsLawyer:

I don't disagree that the imposition of the liability under 4064 is triggered by the termination of the plan. But it can be imposed in certain circumstances upon employers that withdrew from the plan within the five years preceding the date of termination. Thus, in those circumstances, it functions roughly the same as withdrawal liability. Nevertheless, I will concede that it is not exactly the same as withdrawal liabilty.

I was reacting to the language in your prior post that seemed imply that withdrawal liability can only be imposed by contractual obligations. I wanted to point out that in some, albeit limited, circumstances employers could have statutory liability relating to multiple employer plans.

Also, I don't think that the concept of employers having potential liablity upon the termination of a multiple employer plan is terribly widely known, so I wanted to bring it to people's attention.

[Guest BenefitsLawyer]

Kirk: Points taken, and good points all.

Ivegas: It's easy to convert a single employer plan into a multiple employer plan--some changes to the plan documents would be needed to reflect the new structure, with more than one sponsoring employer. As for pitfalls, I think there can be many, mostly (in my experience, at least) related to employers that are unable or unwilling to make their contributions or that want to walk away from funding problems.

[Kirk Maldonado]

lvegas:

The last time I checked, you can't use a master or prototype plan for a multiple employer plan. Trying to amend one to use for a multiple employer plan would probably be more work that reconfiguring an individually designed plan.

While there aren't that many obvious changes to make the plan work in a multliple employer plan arrangement, there are a lot of subtle changes that often get overlooked.

[Guest lvegas]

B/c the 2 employers are affiliated and would like to get the plan amended quickly, a reconfiguration of the individually-designed plan would be the likely course of action.

What are some of the subtle changes you are thinking of and how would they apply in the DB context?

Relative to the determination letter process, is the smoothest way to go to have the plan amend first and then apply on behalf of both employers? Or, would it be better to send proposed amendments to the Service and go from there?

[smm]

Interesting thread. ERISA 4064 is applicable to a multiple employer plan - which is defined as one with at least 2 or more sponsors that are not under common control. Does 4064 also apply to a plan that has several participating employers, all of whom are members of a controlled group (i.e., parent, sub, etc..). I'm thinking of a situation where an employer withdraws on day 1 and is not a part of the controlled group on day 2, or something like that.

[Kirk Maldonado]

SMM:

4064 does not apply if all of the employers are part of a controlled group while their employees are participating in the plan.

[smm]

Kirk - thats what I thought. So does that mean that the withdrawing employer is off the hook?

[Lame Duck]

lvegas,

You stated that the two empoyers are affiliated. In what way? As smm and Kirk discussed, if they are part of a controlled group, you would use a single employer plan rather than a multiple employer plan. Amending the plan document to cover other members of a controlled group is relatively simple.

[Guest lvegas]

Unfortunately, there is no parent-sub or bro-sis relationship that would result in a controlled group.

[Guest lvegas]

More food for thought: assume that the employer w/ the individually designed plan also maintains another plan for a different portion of its employees. If it converts the individually designed plan to a multiple employer plan, can it still permissively aggregate for testing purposes the portion of the converted plan covering its employees with the other plan it maintains?

I think the 410(b) regs allow this, but hoping for confirmation.