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BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Understanding 'Commonality' in Multiple Employer Plans

(Posted April 27, 2012)

Question 312: A lawyer friend of mine says the U.S. Department of Labor requires association-based Multiple Employer Plans to have "commonality" but does not require it generally, such as with open MEPs. Is that true?

Answer: Your friend could profit by a closer reading of the DOL advisory opinions on multiple employer plans ("MEPs").

The advisory opinions examine ERISA's provision that defines an employee benefit plan to be a plan that is established and maintained by an employer or an employee organization. A MEP that is not so maintained is not a single ERISA plan, which means that each adopting employer has adopted a separate plan.

When the DOL talks about "commonality," it generally is referring to whether a plan is established by an employee organization rather than an employer. An employees' beneficiary association is an employee organization, but the DOL long has ruled that such an organization does not exist unless there is commonality among the members. They can be employees of just anyone; they must be employees of a single employer or members of a single labor union. Obviously, an open MEP never could meet that standard.

When looking at the employer side of the equation, the DOL interprets ERISA section 3(5) to require that an employer be one employer, or someone acting for an employer, or a "bona fide group or association of employers."

When does such a group or association exist? The DOL's consistent position has been:

Whether there is a bona fide employer group or association with respect to a benefit program depends on all of the facts and circumstances involved. Among the factors considered are the following:
  • how members are solicited;
  • who is entitled to participate and who actually participates in the group;
  • the process by which the group was formed, the purposes for which it was formed, and what, if any, were the preexisting relationships of its members;
  • the powers, rights and privileges of employer members that exist by reason of their status as employers; and
  • who actually controls and directs the activities and operations of the benefit program.
The employers that participate in a benefit program must, either directly or indirectly, exercise control over the program, both in form and substance, in order to act as a bona fide employer group with respect to the program. [DOL Advisory Opinion 2005-20A; formatting and emphasis added.]
A few recent advisory opinions, such as the one from which the above language is quoted, have used the word "commonality" to reflect one of the factors listed in that long second sentence: "what, if any, were the preexisting relationships of its members." Elsewhere the DOL has referred to this concept as an "organizational nexus."

However it is expressed, the concept always refers to some shared interest outside of the retirement plan itself. For example, the quoted advisory opinion deals with a plan established by the Dunkin' Donuts Northeast Distribution Center, Inc. and Dunkin' Donuts franchisees. The DOL opined that "The Franchisees and the Distribution Center have a commonality of economic interests and a genuine organizational relationship unrelated to the provision of benefits under the Plan. Each Franchisee owns a fractional interest in the Distribution Center."

This list of factors is not limited to trade associations and their MEPs. In essentially every situation presented to the DOL in which the existence of a bona fide group of employers is at issue, those factors are analyzed.

A preexisting business relationship between the employers is one important factor, but the others are important too, particularly how the plan is controlled. For example, returning to the Dunkin' Donuts opinion, the DOL determined the plan to be a single ERISA plan in part because: "The Franchisees and the Distribution Center, and, therefore only employers of common law employees covered by the Plan, will have the power to control the Plan, for example, by reason of their authority to appoint and remove the Administrative Plan Committee constituting the Plan's governing body."

Perhaps your friend means that the DOL has not ruled directly on open MEPs. As of the date of this writing (April 27, 2012), that's true. However, the principles laid out over 30 years of rulings don't offer much hope for sponsors of open MEPs that the DOL will rule that an open MEP is a single plan for purposes of ERISA. Almost by definition, a preexisting business relationship between the employers does not exist in an open MEP. Moreover, many open MEPs are marketed to minimize employer fiduciary exposure, which they purport to do by minimizing any power of an adopting employer to control the plan at all. Instead the plan is controlled by its organizer, a fact that's almost certain to result in a ruling that the plan is not established by a bona fide group of employers.

In fact, I don't see a "single" factor (ouch!), out of all those listed above, that suggests the DOL would find an open MEP to be a single ERISA plan. But who knows? Maybe they'll junk everything and start all over with open MEPs. But I wouldn't bet the house on it.

I discuss this at length in an article in the Winter 2012 Journal of Pension Benefits. The Journal has graciously allowed me to reprint the article. If you would like to read the article, click here. The article also appears on my website,

I also discuss this issue, along with all other matters related to the care and feeding of MEPs, in the 6th edition of my book, Who's the Employer.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.

Copyright 1999-2017 S. Derrin Watson
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