Question 315: I heard the DOL has sought a temporary restraining order against Matthew Hutcheson in connection with the open MEP he dealt with. Does it clarify the approach the DOL is taking in dealing with open MEPs?
Answer: Yes, it does.
Mr. Hutcheson has been indicted in connection with his handling of the Retirement Security Plan & Trust (RSPT). He has pled not guilty, but remained as a fiduciary. The DOL applied for a Temporary Restraining Order (TRO) to have him removed, and on May 16 the court granted the motion, setting the stage for a preliminary injunction.
RSPT is an open MEP. In its Memorandum in Support of Application for Temporary Restraining Order [click], the DOL had this to say about the RSPT arrangement (see pages 4 and 5):
In fact, RSPT was not a single "multiple employer plan" pursuant to ERISA. This is because there was no commonality of employment-based interest among the participating employer sponsors of the plans apart from the provision of retirement benefits, and there was no control of the program by the participating employers such that RSPT qualified as a "group" or "association" of employers as required to be a single plan covering multiple employers for purposes of ERISA section 3(5). Thus, RSPT failed to qualify as a single "pension plan" for purposes of ERISA section 3(2), since it was not established or maintained by an "employer" for purposes of that section.The Memorandum revisits this issue at page 16:
Instead, each of the employers that signed up with RSPT individually established a separate plan subject to Title I of ERISA for the purpose of providing pension benefits to its own employees. [US Code citations omitted.]
As noted above, RSPT was not a single "multiple employer plan" pursuant to ERISA because there was no commonality of employment-based interest among the participating employer sponsors of the plans apart from the provision of retirement benefits, and there was no control of the program by the participating employers such that RSPT qualified as a "group" or "association" of employers as required to be a single plan covering multiple employers for purposes of ERISA section 3(5). Thus, RSPT failed to qualify as a single "pension plan" for purposes of ERISA section 3(2) since it was not established or maintained by an "employer" for purposes of that section.In support of its position, footnote 4 cites:
Instead, each of the employers that signed up with RSPT individually established an individual plan subject to Title I of ERISA for the purpose of providing pension benefits to its own employees. [US Code citations omitted.]
See, e.g., MDPhysicians & Associates, Inc. v. State Bd., Ins., 957 F.2d 178, 186 (5th Cir.), cert. denied 506 U.S. 861 (1992) ("the entity that maintains the plan and the individuals that benefit from the plan [must be] tied by a common economic or representation interest, unrelated to the provision of benefits") (quoting Wisconsin Educ. Assoc. Ins. Trust v. Iowa State Bd., 804 F.2d 1059, 1063 (8th Cir. 1986)).That case deals with a welfare plan, but the DOL, as it has so often in its advisory opinions, views the ERISA definition of employer as being the same between retirement and welfare plans (as indeed it is).
The DOL's litigation position in a single case is not the same as an opinion letter, but it certainly gives an indication of where the DOL is going, and it is not going well for open MEPs. This could also be seen from the testimony of Phyllis Borzi (Assistant Secretary of Labor) to a Senate committee on March 7, when she said:
While it is clear from my testimony that the Department supports efforts to expand small business coverage, it is just as important that ERISA's protections for workers' pensions be maintained. In that regard, the Department has more recently become aware of promoters marketing multiple employer plans, or "MEPs," that do not involve collective bargaining with an employee representative. These arrangements, often called "open MEPs," purport to allow totally unrelated businesses to join together to offer a collective pension plan. Promoters claim that these arrangements relieve businesses of their ERISA reporting and fiduciary obligations in connection with administering the plan or monitoring the plan investments and service providers. Proponents say such arrangements can provide the participating employers with a way to pool resources and reduce administrative costs. There are several bills pending in Congress which call for the Department, in coordination with the Treasury Department, to provide fiduciary relief and simplified administrative, reporting and disclosure obligations for multiple employer plans. We are currently analyzing these proposals.In light of this testimony, and the DOL's position in the TRO, it seems irresponsible to urge an employer to enter into a MEP without explaining the risks attending that choice, and that the open MEP may not "relieve businesses of their ERISA reporting and fiduciary obligations" as hoped.
Under ERISA, employee benefit plans must be sponsored by an employer, by an employee organization, or by both. ERISA expressly recognizes the idea of a "multiple employer plan" by including in the definition of "employer" any "person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity."
For example, a MEP operated by a bona fide employer association or group of related employers is a well-established concept in ERISA. Such plans in fact can provide the participating employers with a way to pool resources and reduce administrative costs. The idea of "open MEPs," however, is not an established concept in ERISA. Indeed, EBSA has had difficult experiences with similar "open" employee benefit structures in the group health area. These arrangements, called "MEWAs," or multiple employer welfare arrangements, can be provided through legitimate organizations, but they sometimes are marketed using attractive, but unsound, organizational structures and generate large, often hidden, administrative fees for the promoters. In addition, certain promoters try to use ERISA's general preemption of state laws as a way to avoid state insurance or other regulation. That fact, together with the claimed separation of the employer from accountability for the plan's administration, too often put workers at risk of not getting the benefits they were promised. Bringing this type of product to the pension marketplace presents a number of complicated and significant legal and policy issues. We understand that the Government Accountability Office is actively studying this development in the pension marketplace.
We have also heard about this "open MEP" development from regulated financial institutions, including insurance companies and other financial service providers, who currently are allowed under Internal Revenue Code rules to offer "prototype" plan products to employers. These prototype plans are another way to reduce legal and administrative costs of offering employees a tax qualified pension plan. Some financial institutions have expressed reservations about developing competing "open MEP" products. Their lawyers, based on a review of the many Department of Labor opinions and other guidance on "open MEWAs," have expressed concerns about whether these "open" benefit arrangements can fairly be classified as a "single" plan as opposed to a collection of separate plans being collectively administered much like the prototype plans they already offer. We have been informally asked to provide guidance in this area by some of those groups, and we have two formal requests for guidance, one directly presenting the open MEP issue and the other indirectly. We are actively working on answering these requests.
The DOL's position in the RSPT matter is entirely consistent with what I explained in my article for the Journal of Pension Benefits and summarized in Q&A 312 in this column.
I discuss the issue of open MEPs further, along with all other matters related to the care and feeding of MEPs, in the 6th edition of my book, Who's the Employer.