Multiple ER Plan

[Lori Foresz]

Help. Plan document is structured as a multiple ER plan but individual adopting ERs are filing Forms 5500 as single ER plans. TPA is saying that this method is approved by the IRS but can't find any guidance. The multiple ER plan would have over 120 participants, but each adopting ER is very small (less than 20 participants) so no audit is being done on the plan as a whole. Have anyone seen this before? They said it is common with PEO plans to file separate Forms 5500 like this but have one common document.

Any guidance is greatly appreciated.

[austin3515]

Line I of the 5500 asks you to check a box if this is a multiple employer plan.

Schedule T asks you to file a Schedule T for each "employer".

So anyone who says each ER files their own 5500 is definitely mistaken. Further, the DOL could care less if there were 2 or 1,000 employers in a plan. Figuring out who the "employer" is is an IRS issue. The DOL wants to know how many people are in the Plan. When adding up all of the employees of all of the "employers" if you've got more than 100 you've got an audit (subject to the 80/120 rule). In fact, if you had two separate plans with 70 unique participants each, and one employer, you would have no audit requirement because neither plan breaks 100.

As a former public accountant who specialized in retirement plan audits I can tell you that I did a few audits for ME plans, all filed one 5500, and none of them would have needed an audit without counting all of the employees of all of the employers. None of the ERISA attorneys involved, nor the TPA's, seemed to have any issues. The TPA firm I work for now handles this the same way.

[alanm]

The TPA simply made a mistake in filing 5500s for each worksite. The question is how to get back on track and I would say file a final 5500 for each worksite this year and show assets merged out into the sponsors 5500 and begin sending schedule Ts for the 2005 plan year. We have taken over mutiple employer plans in the past that have this problem and that has been the solution.

[Ron Snyder]

I disagree with the prior posted responses. You may be looking at a multiple-employer trust with individual employer adopted retirement plans. This is the usual arrangement for PEOs and trade associations. In such a situation, even though the plan document is standardized and provided by the sponsoring PEO / association / ???, the adoption of the plan still results in a single-employer plan. The commonality of the trust fund does not impact whether or not it is a SEP. The relationship of the employer to the sponsor is determinative. If the adopting employers are legally unrelated to each other or to the sponsor, the plans, of necessity, are single-employer plans and require separate 5500s.

[austin3515]

Do you have any references to support that? My understanding is one plan document, one plan, one 5500, etc. no matter the number of unrelated employers or what their relationship is, if any. Remember, all of the ownership rules and controlled group rules are all in the IRC, not ERISA or the DOL Regs. I agree that commingling of funds is not the issue. I'm no expert on PEO's but I think that logic will hold in that environment as well. But regardless, that is not the situation here.

In fact, just because you have adopting employers doesn't mean you have multiple employer plan in the first place. You need to have two separate controlled groups (not simply two adopting entities). For example, a 100% owned subsidiary participating in the parent company's plan does not a ME Plan make. That may be known here, but I wanted to clarify.

[Lori Foresz]

Hi,

This is exactly the debate I have been having internally but I believe that it is accepted practice for PEOs to have plans designed this way- the looks of a multiple ER plan (i.e one plan document) but treated as a collection of single ER plans for Forms 5500 (and audit requirements). What gets me is that why would any employer take on the expense of adopting and maintaining a plan document if they could just adopt an IDP of an unrelated employer and continue to file as a single ER small plan? Seems odd. My final question if anyone can help is who would be the actual legal sponsor of the plan(s). The Form 5500 says the CO but the document says the PEO? An attorney is telling us one of the COs can't set up an ESOP if they participate in a 401(k) plan of which they are NOT the sponsor. I'm not sure why but am still researching that one. Thanks everyone!!

[austin3515]

I'm going to correct myself:

Page 14 of the 2003 5500 instructions: "A separate Form 5500, with box A(2) checked, must be filed by each employer participating in a plan or program of benefits in which the funds attributable to each employer are available to pay benefits only for that employer's employees, even if the plan is maintained by a controlled group."

Based on this I have changed my response. Because even members of a controlled group would file a separate form, certainly unrelated employers would file a separate form if they met that requirement. Even though Box A(2) indicates that the plan is a single employer plan, when it is not, it seems that the instructions are telling you to indicate that the Plan is a single employer plan if the stipulation in that paragraph is satisfied.

Unfortunately, I don't think that it's easy to determine whether or not this test is met. It is likely not as easy as looking at a report, but rather gets into the nitty gritty of some legal document somewhere...

You learn something new every day...

[alanm]

Speaking as a TPA of 50 multiple employer plans and with 80% of my business from PEOs and after having addressed the National Association of PEOs last month on the subject and having been through two dozen audits and filed at least 500 5500s using a schedule T, I can honestly say I have never seen A MEP document that allowed you to check block A2; A3 is the correct block. All the MEP plans I administrate allow the administrator/trustee to use assets of one adopting employer to be used to provide benefits of another or pay plan expenses at the discretion of the trustee. Without that right, you are in a liability box. For example, what if one adopting employer elects safe harbor and then leaves the PEO before funding it; the whole plan, including all adopting employers are liable for the consequence and the trustee must assess them for the contribution to keep the plan qualified. There are many instances why this provision is necessary and no attorney in their right mind would draft a MEP document putting the Sponsor/Administrator/Trustee in such a predicament. If you check the document, I'll bet it will say in the trust agreement that the trustee has the right to use all plan assets to provide benefits to all employees regardless of adopting employer.

[austin3515]

Are you saying that all MEP's will say that the assets of one Adopting Employer can be used to pay the benefits of all other Adopting Employers? You gave the example of one employer ducking out before funding a SHNEC. Are you saying that all other employers would then be on the hook for that?

Finally then, it seems your position is that there is only one 5500 for the entire MEP? For example, a PEO sponsoring an MEP with 100 unrelated employers will file on separate 5500 with 100 Schedule T's?

[alanm]

I am not speaking for all MEPs. For those drafted as I outlined, one 5500 filed by the sponsor with schedule Ts attached--- one T per adopting employer. Many MEP documents were originally single employer plan docs that were amended to be a MEP when revenue procedure 2002-21 was issued mandating a MEP for PEOs. It could be an oversight to not allow assets to be transferred between adopting employers at the discretion of the trustee. If the oversite occured, you will have a lot more problems to deal with than which way to file the 5500. In the end, if you file 5500s individually, nothing bad is going to happen; you just went to more trouble that it was worth. The IRS agent that audits the plan will be confused for 10 miniutes and that will be the end of it.

[Lori Foresz]

Thanks everyone. Actually, the document we inherited says that benefits are not available to pay benefits of EEs of all adopting ERs which - may be why the prior TPA took the collection of single ER plans approach and multiple Forms 5500s were filed last year.

The issue is more than just more work in preparing multiple Forms 5500. If the MEP has over 100 participants, but each ER files a separate Form 5500, you are avoiding the audit requirement. That can be a substantial cost savings.

Clear as mud.

Thanks again