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BenefitsLink > Q&A Columns >

Who's the Employer?

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

Open MEPs Are NOT Single ERISA Plans

(Posted May 28, 2012)

Question 316: What do we know about multiple employer plans, now that the DOL has issued Advisory Opinion 2012-04A, that we didn't know before?


We have one key piece of the puzzle. We know how the DOL views these plans for purposes of ERISA. Before, we could only guess (albeit an educated guess). However, the implications of that view will take some time to fully uncover, and there are answers I'd really love to hear officially.

This will be the first of several Q&As dealing with Advisory Opinion 2012-04A (herein referred to as the "Opinion") and its aftermath. This one will focus on the key question the Opinion deals with: Are open MEPs single employee benefit plans under ERISA? Unmistakably, after the Opinion, the answer is "No."

I'm fascinated that people are surprised by the answer. When viewed objectively, it is hard to see how the DOL could come to any other conclusion given 30 years of rulings. Granted, none of those opinions looked at open MEP retirement plans per se. But they laid out a consistent analytical framework which the DOL used in the Opinion. It would have been surprising to see DOL reach any other result.

The Opinion follows historic DOL reasoning right down the line. It also dovetails nicely the position the DOL took in its recent application for a temporary restraining order involving Matthew Hutcheson, as well as Assistant Secretary of Labor Phyllis Borzi's recent testimony to Congress. (For a discussion of these items, see Q&A 315.)

The analysis is straightforward. Let me quote from Q 18:19 of the new 6th Edition of my book, Who's the Employer (published before the Opinion was issued). I have added {italicized comments in braces} to take the Opinion into account:

Q 18:19. For purposes of ERISA, is a MEP really a single plan or is it actually multiple plans?

This is a remarkably complex question, with an answer heavily dependent on the facts and circumstances surrounding the MEP. The short answer is "Yes, a MEP can be a single plan under ERISA, but frequently it is not." For a detailed answer, see my article, Multiple Employer Plans: An ERISA Enigma, appearing in the Winter 2012 issue of the Journal of Pension Benefits (Vol. 19, No. 2, p. 6). The article gives many citations and examples, and explains and refutes some of the contrary arguments. The balance of this question summarizes that article.

Under ERISA §3(2), an employee pension benefit plan is generally "any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both," that provides retirement income or deferred compensation. Essentially the same definition appears in ERISA §3(1) for employee welfare benefit plans, except for the type of benefits provided.

ERISA §3(5) defines "employer" as "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." DOL advisory opinions addressing MEPs frequently apply this provision to hold that a particular set of sponsors does not does not constitute an employer under this definition.

This means that a plan, regardless of its status under the Code, is not a single plan under ERISA unless it is established and maintained by:

  • Any person acting directly as an employer,
  • Any person acting indirectly in the interest of an employer, in relation to an employee benefit plan; or
  • A "bona fide" group or association of employers acting for an employer.

The words "bona fide" do not appear in the statute, but they appear repeatedly in DOL interpretations. In DOL Advisory Opinion 83-15A, the DOL added:


A determination of the existence of a bona fide employer group or association must be made on the basis of all relevant facts and circumstances. The following are among the factors which should be considered in making such a decision: the manner in which association members are solicited; identification of persons eligible to participate (and who actually participate) in the association; the presence of a pre-existing relationship among the members; the process by which and the purpose for which the organization was formed; the powers, rights, and privileges of employer members that exist by reason of their employer status; and the identification of the parties who actually control and direct the activities and operations of the association and its benefit program.

With that framework, the opinion went on to find that a retirement arrangement offered by the American Dental Association (ADA) was not a single ERISA plan. Surely the ADA is a bona fide association. But it is an association of dentists, not of employers.

For example, suppose the leadership of the ADA were to present a retirement plan at one of its meetings for the approval of its membership. Three dentists sitting together each vote for the arrangement. The first dentist owns 1/3 of an incorporated dental practice. The second dentist is one of the employees of the practice, but owns no stock. The third dentist is a sole proprietor with no employees. None of the three is an employer. The first dentist comes the closest, but the employer is the corporation, not the individual shareholders. The second dentist is an employee only. The third dentist is neither an employer nor an employee for purposes of determining the existence of an ERISA plan. [Q 2:13.]

{The list of factors hasn't particularly changed in the last 30 years. Here is the list from the Opinion:}


{[R]elevant factors in determining whether a purported plan sponsor is a bona fide group or association of employers include the following: how members are solicited; who is entitled to participate and who actually participates in the association; the process by which the association 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 in substance, in order to act as a bona fide employer group or association with respect to the program. There is nothing in your submission to support a conclusion that a bona fide association or group of employers is sponsoring the [open MEP under consideration].}

This analysis is the basis of a long series of DOL opinions holding that association MEPs are not single plans under ERISA. Does that mean that ERISA does not apply at all? Hardly. Rather, according to the DOL, if an ERISA §3(5) employer adopts a MEP for its employees, "that employer may be considered to have established an employee pension benefit plan with regard to such employees." In other words, the arrangement itself is not a pension benefit plan, but individual employers who enter into the arrangement may have adopted separate plans, each subject to the ERISA. See also DOL Advisory Opinion 81-73A.

{The Opinion comes to the same conclusion. Each adopting employer has adopted a separate ERISA plan:}

{[I]t is the view of the Department that the Plan does not constitute a single "multiple employer" plan for purposes of ERISA, but rather is an arrangement under which each participating employer establishes and maintains a separate employee benefit plan for the benefit of its own employees.}

Most of the DOL opinions which have looked at this issue have focused on two issues:

  • Do "employers" control the organization or the plan?
  • Was there a pre-existing relationship among the members? DOL Advisory Opinion 82-21A refers to this as an "organizational nexus."

Association MEPs almost invariably fail the first prong because the association includes entities that are not ERISA employers. They have a stronger case on the second prong, but even the fact that employers might belong to the same society might not be a sufficient "organizational nexus."

And if association MEPs, which have a common business, fail the test, what then of open MEPs [see Q 18:3] where there is no pre-existing relationship at all? . . . {Advisory Opinion 2012-04A is a formal ruling on the question, and without ambiguity declares that an open MEP is not a single plan under ERISA. Rather, each employer who adopts the plan has established a separate employee benefit plan.}

But, so what? So we're not a single plan -- what does it matter? It matters because one of the first benefits cited for using a MEP is that you can file a single Form 5500, with a single audit. Arguably, that goes away if there are multiple plans. See DOL Advisory Opinions 81-47A, and 82-21A. (I'll discuss this in later an later Q&A.)

There is one final point that should be considered. Even if an ERISA §3(5) employer establishes a MEP (as would likely be the case in a "shared employee" or "kissing cousin" situation), there is still a possibility that what appears to be a single plan might actually be multiple plans because of the funding arrangement. If my funds are available only to pay my employees, and cannot be used to pay your employees (even though we both sponsor the plan), then we have separate plans. This is true for the Internal Revenue Code and for ERISA. See Q 22:1 et seq.

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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