Can a TPA Sponsor a one-state MEP?

[austin3515]

https://content.next.westlaw.com/w-017-1687?isplcus=true&transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1
 

Quote

"The group or association is not a bank or trust company, insurance issuer, broker-dealer, or other similar financial services firm (including pension record keepers and third-party administrators), or owned or controlled by such an entity or any subsidiary or affiliate of such an entity, other than to the extent such an entity, subsidiary, or affiliate participates in the group or association as an employer member of the group or association."

So can we sponsor a MEP as long as our own company's 401(k) Plan is a participating employer?

[RatherBeGolfing]

15 minutes ago, austin3515 said:

https://content.next.westlaw.com/w-017-1687?isplcus=true&transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1
 

So can we sponsor a MEP as long as our own company's 401(k) Plan is a participating employer?

No.  The TPA would not be a bona fide "group or association of employers".  

The proposed reg does not cover open MEPs or PEPs 

[austin3515]

What do you think about this language though (italics)?  That seems to provide a way?

"The group or association is not a bank or trust company, insurance issuer, broker-dealer, or other similar financial services firm (including pension record keepers and third-party administrators), or owned or controlled by such an entity or any subsidiary or affiliate of such an entity, other than to the extent such an entity, subsidiary, or affiliate participates in the group or association as an employer member of the group or association."

[RatherBeGolfing]

2 minutes ago, austin3515 said:

What do you think about this language though (italics)?  That seems to provide a way?

"The group or association is not a bank or trust company, insurance issuer, broker-dealer, or other similar financial services firm (including pension record keepers and third-party administrators), or owned or controlled by such an entity or any subsidiary or affiliate of such an entity, other than to the extent such an entity, subsidiary, or affiliate participates in the group or association as an employer member of the group or association."

The quoted section is only one of the requirements.  You still need to be a group or association with a commonality of interest.  For example, location could be a commonality of interest, so a local chamber of commerce could sponsor a MEP under the proposed regs.  Trade/industry/profession is commonality of interest, so an association like  ASPPA could sponsor a MEP under the proposed regs.

The concept of Pooled Employer Plans where all you need is one employer sponsoring the MEP and agreeing to be the Pooled Plan Provider is not considered in the proposed regs since the proposed regs have to follow existing legislation.  The are basically just expanding the concept of commonality of interest.

Since the TPA is not a group or association of employers, its a non starter under the proposed regs.

[austin3515]

Well we do have commonality if we operate in say "Alaska" and have only Alaskan businesses as clients.  They list geography as a commonality?

 

Quote

 

The employer members have a commonality of interest, which exists if:

• the employers are in the same trade, industry, line of business, or profession; or
• each employer has a principal place of business in the same region that does not exceed the boundaries of a single state or a metropolitan area (even if the metropolitan area includes more than one state).

 

•  

[RatherBeGolfing]

5 minutes ago, austin3515 said:

Well we do have commonality if we operate in say "Alaska" and have only Alaskan businesses as clients.  They list geography as a commonality?

But the TPA is not a group or association of employers, it is just an employer.  If you had a TPA association, you could sponsor a MEP for TPAs.  If you had an Alaska Chamber of commerce, you could sponsor a MEP for members of that chamber of commerce.

Region is a commonality of interest under the reg, but the region has to be the commonality for the group or association.  Being a service provider and having only regional clients is not a group or association of employers.

[austin3515]

 

Quote

 

It may have a primary purpose of offering and providing MEP coverage to its employer members and their employees. However, the group or association also must have at least one "substantial business purpose" unrelated to offering and providing employee benefits to its employer members and their employees. Under a regulatory safe harbor, a substantial business purpose exists if the group or association would be a viable entity in the absence of sponsoring an employee benefit plan. A "business purpose":

• includes promoting common business interests of its members or the common economic interests in a given trade or employer community; and
• is not required to be a for-profit activity.

 

• OK, got it.  This is what I skimmed over.

[Larry Starr]

3 hours ago, austin3515 said:

 

• OK, got it.  This is what I skimmed over.

Austin, glad you are finally a believer.  Ratherbegolfing has it exactly correct; you cannot sponsor a MEP (at least, not under these rules; we will see what may eventually come down the pike).

[G8Rs]

Just one point of clarification on this. They can still sponsor a MEP under IRC 413(c). But for ERISA purposes it won't be treated as a single plan (e.g., separate 5500s would be required). 

[austin3515]

That's actually an interesting point.  But interestingly if we "insist" that we only allow clients with few than 100 participants, perhaps we can avoid the worst part of sponsoring a MEP anyway which would be the audit?

If we have all of the records to do the SFs wouldnt be THAT much extra work if we're already doing client level testing/allocations, etc.

Is anyone out there doing this?

[MoJo]

Would not the "one bad apple" problem still exist in Austin's scenario (unless and until appropriate legislation is passed)?

[austin3515]

Ahh yes.  But hopefully the IRS guidance in response Trump's Exec Order will alleviate that even for these.