Question 325: Did the Advisory Opinion on open MEPs consider all the legal arguments in their favor?
Answer: Yes. Advisory Opinion 2012-04A (herein referred to as the "Opinion") which determined that the underlying employers of an open MEPs have each established separate ERISA plans, considered every legal argument I have heard or read to support open MEPs. And it rejected each and every one of them based on 30 years of established DOL precedents.
Individual Employers Adopted Individual Plans
ERISA § 3(5) defines "employer" in relation to an employee benefit plan as:
The Opinion refers back to longstanding DOL views that the third phrase in that definition refers to a "bona fide group or association of employers" and finds that an open MEP is not a bona fide group.
- "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."
MEP promoters say that in an open MEP, each individual employer satisfies the first part of that definition, and that the open MEP isn't an association adopting a plan on behalf of its members (but instead that each individual employer chose to enter the plan).
The problem: that line of reasoning actually supports the DOL's conclusion. Yes, each employer has adopted a plan, a separate plan under ERISA. The DOL's response couldn't be plainer:
In your submission, you assert that there is no need for a bona fide employer group or association or for any person to be acting indirectly in the interest of the direct employers because each employer who enters into a participation agreement with TAG to provide benefits to its employees through the Advantage Plan will be acting as a Plan "co-sponsor," and "acting directly on its own behalf" in separately adopting a "multiple employer" defined contribution plan for its own employees. As described above, the mere execution of identically worded trust agreements or similar documents by unrelated employers as a means to fund or provide benefits for their employees, is not a sufficient basis for concluding that the employers have established or maintain a single plan for purposes of ERISA. See, e.g., Advisory Opinion 2008-07A. Participation agreements that label the signatory employers as co-sponsors of a plan do not change this conclusion. Accordingly, 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.
ERISA § 210 Does Not Change The Analysis
MEP supporters note correctly that ERISA § 210 contains rules, much like Code § 413(c), dealing with crediting hours of service in a MEP. Ergo, they reason, ERISA recognizes MEPs.
Well, of course, ERISA recognizes MEPs. There have been many advisory opinions recognizing a bona fide group or association, and therefore opining that the MEP was a single ERISA plan. ERISA § 210 tells us what to do with such a plan. It does not say that every plan that calls itself a single ERISA plan is one. The Opinion notes:
Contrary to your suggestion, section 210 of ERISA and the regulations implementing the minimum coverage and participation rules of Part 2 of ERISA do not dictate a different conclusion. While those regulations refer to section 413 of the Code at various points (see, e.g., 29 CFR 2530.210(c)), they do not purport to make questions of ERISA coverage turn on section 413 of the Internal Revenue Code. To the contrary, as the Department's regulations make clear (see 29 CFR 2530.201-1), the determination of ERISA coverage is a multiple step process, and, in order for Part 2 of ERISA to apply, "[f]irst, the plan must be an employee benefit plan as defined under section 3(3) of the Act and § 2510.3-3. (See also the definitions of employee welfare benefit plan, section 3(1) of the Act and § 2510.3-1 and employee pension benefit plan, section 3(2) of the Act and § 2510.3-2)." This letter concerns only whether the Advantage Plan is an "employee benefit plan" under sections 3(2) and 3(3) of ERISA. For the reasons set forth above, in the Department's view, it is not.
Code § 413(c) Does Not Provide All the "Commonality" MEPs Need
Some MEP supporters have argued that because MEPs are subject to Code § 413(c), the cosponsors automatically have "commonality" because they must count each other's service.
This argument misunderstands the meaning of commonality in this context. I discussed the correct use of the word in Q&A 312, and will not repeat myself except to note the conclusion that the DOL is looking for a preexisting organizational nexus. "Preexisting" means it exists before the formation of the plan.
Two quotes from the Opinion are helpful here:
The Department is not expressing any opinion in this letter on the application of section 413(c) of the Internal Revenue Code (Code) to the Advantage Plan. Code section 413(c) addresses the tax qualified status of certain pension "plans" that cover the employees of multiple employers. Section 413 of the Code, however, does not control whether an arrangement is an "employee benefit plan" under ERISA. Cf. In re Sewell, 180 F.3d 707, 711 (5th Cir. 1999) (there is no requirement under ERISA that to be a plan governed by ERISA, a plan must be tax-qualified).
It has been the Department's consistent view that where several unrelated employers merely execute identically worded trust agreements or similar documents as a means to fund or provide benefits, in the absence of any genuine organizational relationship between the employers, no employer group or association exists for purposes of ERISA section 3(5). Based on our review of the information provided, there is no employment based common nexus or other genuine organizational relationship that is unrelated to the provision of benefits between Advantage or TAG and the employers of employees that benefit from the Plan, or among the different groups of employees that participate in the Plan.
Open MEPs Are Not Single ERISA Plans Even Though "Commonality" Does Not Appear in ERISA
One author noted (correctly) that neither ERISA nor its regulations requires "commonality" and argues that therefore the DOL cannot. This argument ignores the fact that both the DOL and the courts have required a preexisting organizational nexus many times during the years. As the Opinion says:
Additionally, according to the materials we reviewed, it does not appear that Advantage or any other entity involved in the administration or operation of the Plan would be a bona fide employer association acting in the interest of the direct employers whose employees are covered by the Plan. In this regard, in the absence of regulations under ERISA section 3(5), the Department has taken the view, on the basis of the definitional provisions of ERISA as well as the overall statutory scheme, that, in the absence of the involvement of an employee organization, a single “multiple employer” plan (i.e., a plan to which more than one employer contributes) may, nevertheless, exist where a cognizable group or association of employers, acting in the interest of its employer members, establishes a benefit program for the employees of member employers and exercises control of the amendment process, plan termination, and other similar functions on behalf of these members with respect to a trust established under the program. See e.g., Advisory Opinions 2003-17A and 2001-04A. See also Advisory Opinion 96-25A (if an employer adopts for its employees a program of benefits sponsored by a group or association that does not itself constitute an “employer” or an “employee organization,” such an adopting employer or employee organization may have established a separate, single-employer benefit plan covered by Title I of ERISA).
The Opinion goes on to identify the factors it finds relevant in determining whether a bona fide group exists, including preexisting relationships. For the full quote, see Q&A 316.
Employer Means the Same Thing for Pension Plans That It Does for Welfare Plans
MEP supporters, in their efforts to distinguish contrary DOL authority, have tried to say there should be a different standard for what constitutes an ERISA § 3(5) employer when applied to a pension plan and a welfare plan. However, there is no support for that position in case law, ERISA, or DOL opinions. In fact, the DOL has referred to pension opinions to help decide welfare cases, and to welfare opinions to help decide pension cases.
In your submission, you urge that the Department's historical interpretation of "employer" under section 3(5) of ERISA regarding multiple employer welfare arrangements (MEWAs) should be restricted to welfare plans and that a less restrictive interpretation be applied to retirement plans. The Department is of the view, however, that the term "employer" should have the same meaning in this context whether applied to the term welfare plan or pension plan. See Sullivan v. Stroop, 496 U.S. 478, 484 (1990).
The Opinion dealt only with legal issues. It did not address the policy issues that underlay the DOL's decision, and it did not need to. However, MEP supporters repeatedly urge the strengths of the MEP design as reasons to foster it. Ultimately, those are arguments best taken to Congress. The DOL felt bound by existing precedents. For a deeper understanding of this point, 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). 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.