Question 318: Who is the plan sponsor of an open MEP after the recent Advisory Opinion?
Answer: This is an important question, and one that requires a careful reading of Advisory Opinion 2012-04A (herein referred to as the "Opinion"). Fortunately, it is a question the Opinion and ERISA answer clearly. The Opinion cites ERISA § 3(16), which states:
The term "plan sponsor" meansSo, to know who is the plan sponsor (for purposes of ERISA), we must first determine whether the employee benefit plan in question is established by a single employer, or a plan established by an employee organization, or a plan established by more than one employer or employee organization. The Opinion answers that question clearly for an open MEP:
(i) the employer in the case of an employee benefit plan established or maintained by a single employer,
(ii) the employee organization in the case of a plan established or maintained by an employee organization, or
(iii) in the case of a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan.
It 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.An open MEP is not a single ERISA plan but instead is a series of separate plans, one for each adopting employer. And those separate plans generally have only one employer. Therefore, ERISA says the plan sponsor of the separate plan is the employer, not whomever the document refers to as the plan sponsor or the lead employer.
So, let's consider the "Advantage Plan" discussed in the Opinion. The plan document says that 401(k) Advantage LLC ("Advantage") is the Plan Sponsor. That designation may impart certain duties and authority under tax law or the document, but our concern right now is ERISA. Over 500 unrelated employers "co-sponsor" that plan. Each unrelated employer that is an ERISA employer has established a separate plan under ERISA and is the plan sponsor of that plan.
Apparently, the Advantage Plan is open to union co-sponsorship. A union is an "employee organization" which might well establish a separate plan. So, the employers under the collective bargaining agreement might all be in a single ERISA plan, with the union itself in the role of plan sponsor.
Of course, some of the sponsors might not be capable of sponsoring an ERISA plan. For example, a sole proprietor with no employees could co-sponsor the plan. The sole proprietor is not an employee under ERISA and since there are no employees, the sole proprietor cannot establish an ERISA employee benefit plan. See DOL Reg. § 2510.3-3.
But by far the greatest number of co-sponsors are likely to be single employers, who are each the plan sponsor of an ERISA plan, whether they know it or not.
What effect does that have? Over 44 sections of ERISA discuss the plan sponsor, but the effect is varied and depends on plan type and circumstances. If the plan is not a defined benefit plan, many of those sections will not apply. But in my next two columns I will focus on two issues:
- Fiduciary responsibility, and
- Form 5500.
Although I will address Form 5500 in a future column, while I'm talking about the plan sponsor, I should note that page 15 of the 2011 Form 5500 instructions (which apply for both the IRS and the DOL) define plan sponsor in the same way as ERISA itself. The same definition also appears in the 2011 Form 8955-SSA instructions, on page 4.
For further discussion of the qualification issues related to MEPs in general, see Chapter 18 of the new 6th Edition of my book, Who's the Employer.