Retirement Plan Consultant
Cetera Retirement Plan Specialists
Blue Ridge ESOP Associates
(Charlottesville VA / Telecommute)
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|Question 326: What can I do to change my open MEP so it will get around the Advisory Opinion? My preference, of course, is to do as little as possible.|
Answer: Believe it or not, I've actually received this question, more than once. The question is roughly equivalent to "How can I change a cat into a horse? Will putting a saddle on it do?" The best answer comes from Dante's Inferno: "Abandon all hope, ye who enter here."
No. There is no easy way around Advisory Opinion 2012-04A (herein referred to as the "Opinion") which determined that the underlying employers of an open MEP have each established separate ERISA plans. There's not even a hard way around it, without completely tearing the open MEP to pieces.
In the Opinion, the DOL, following 30 years of precedents, wrote that the determination of whether a bona fide group or association exists is a facts and circumstances test, and identified the following analytical factors:
One member of the MEP community was recently quoted as saying that the DOL is unclear in its discussion of "commonality" (preexisting relationships) and control. The criticism is unwarranted. These factors have been around for decades. Dozens of advisory opinions have dealt with them. They weren't developed three weeks ago without explanation. There is a rich history of the application of these factors. An understanding of those factors is available to anyone who takes the trouble to read that history. For a "jump start" on understanding these factors, I recommend reading 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).
Consider the third factor, which considers, in part, the preexisting relationships of the members. Look at some of the opinions where the DOL has found that a preexisting relationship exists:
These are not casual relationships. It isn't that they just have something in common: they're all Republicans, or they all play poker, or they're all self-employed. It isn't enough that they be in the same geographic region, or that they practice the same profession. It certainly isn't sufficient that they have the same service provider or have adopted the same plan. These are legitimate business relationships which transcend anything to do with the plan.
My concern is that some MEP organizers will try to gin up a superficial "relationship" between the unrelated adopting employers (which, of course, is what makes the open MEP "open"). It will not fly, but it may convince some trusting employers to give it another try.
The fifth factor, control, is also important. The advisory opinions repeatedly focus on this factor. Oftentimes, the DOL has said in effect, "It looks like the employers control the plan on paper, but we're concerned that they don't have control in reality." In cases like that, the DOL frequently declines to rule.
Let's suppose you gave the employers real control over the MEP. What would that look like? Perhaps there would be annual "meetings," where the employers could fire the plan administrator or other organizers, and where they could review and negotiate the compensation of these officials, perhaps with the help an independent executive committee which would review the service provider disclosures and shop for alternative vendors. Is that what the MEP organizers want? And if they got it, what would happen to their promises of sharply curtailed fiduciary responsibility for the employers, arguing the employers have little or no decision making capability? I submit such a design, if real and not just on paper, would radically transform the MEP.
Finally, let's look at some often overlooked factors. The first factor the DOL lists is how members are solicited. The DOL also asks about the process by which the association was formed. There's a marvelous opinion on point. Advisory Opinion 80-42A provides a detailed analysis of a plan established by a trust for entities affiliated with the Roman Catholic Church to provide health care benefits to employees of the entities. In this case, employers became the trustors (settlors) of the governing trust as they cosponsored the plan.
The DOL opined that there must be "some organizational relationship among employers in forming a group or association and establishing the plan." By contrast, "'plans' established and maintained by insurance entrepreneurs for the purpose of marketing insurance products to employers and employees at large are not ERISA plans."
The church affiliation argued for a preexisting relationship. The trust arrangement, with voting rights allocated proportionately based on participating employees, argued for control, at least on paper. The DOL declined to rule, for two reasons:
In other words, if the employers, of their own volition, outside the plan, set up business relationships, that is completely different from a service provider bringing several clients together. I don't see how open MEP organizers can get around that. Unfortunately, I can easily believe some of them claiming that they have. Caveat emptor.
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.