A primer on multiple employer solutions: MEPs vs PEPs vs Defined Contribution Groups
The Pooled Employer Plan (PEP) and Defined Contribution Groups (DCGs) provisions in the Setting Every Community Up for Retirement Enhancement (SECURE) Act and related proposed U.S. Department of Labor regulations are among the most publicized elements. These multiple employer solutions were introduced to expand retirement plan access for all individuals — and to build onto the foundation that already existed with Multiple Employer Plans (MEPs).
However, since their introduction, there has been some confusion surrounding the types of multiple employer retirement solutions available to employers — MEPs, PEPs, and Defined Contribution Groups.
If you are thinking about joining a multiple employer plan arrangement, you should consider speaking to your retirement plan consultant or advisor for assistance with navigating the evolving regulatory landscape. In the meantime, read on for a primer on multiple employer plan arrangements.
Multiple employer solutions at a glance
Multiple employer solutions allow organizations to band their employees in one retirement plan or leverage the buying power of a solution designed for a group of single-employer plans. These plans and groups offer smaller employers many of the same advantages as larger plans, such as access to more robust plan services, lower-cost investments and reduced fiduciary responsibilities.
Multiple employer retirement solutions generally require employers to follow the same plan provisions and allow some plan design flexibility such as determining plan eligibility and vesting schedules. These requirements help simplify plan administration and reduce costs. Employers retain some responsibilities in regards to selecting and monitoring the plan provider, submitting payroll files, and funding contributions timely.
Overall, the intent is to provide a cost-effective way for employers to help their employees participate in a retirement savings program without all of the complexity and burden of a traditional single-employer retirement plan.
One consideration: Don’t be confused by similarly sounding names. Multi-employer plans are not the same as multiple employer plans.
- Multi-employer plans, also known as Taft-Harley plans as a result of their formation under the Taft-Hartley Act of 1947, are sponsored by labor unions for union workers who work on multiple jobs across different employers, while
- Multiple Employer Plans (MEPs) are retirement plans adopted by two or more employers that typically have a common nexus, but are not commonly owned.
While the employer is the plan sponsor in a single-employer plan, a MEP’s plan sponsor may be an employer, professional employer organization or an industry association.
For further clarity, let’s take a closer look at the three main types of qualified multiple employer retirement solutions — MEPs, PEPs and DCGs.
Multiple Employer Plans (MEPs)
MEPs are comprised of two primary formats: first, there are MEPs where the participating employers are under common control, such as a group of employers, some of which are owned in whole and others in part by the same parent organization.
Second, there are MEPs maintained by independent employers that are in the same trade, industry group, or association. Examples include Rotary Groups with similar civic organizations, trade associations or construction contractors (and their related associations).
Employees participating in these plans receive the same tax advantages as employees do in larger, more traditional single-employer retirement plans. Employee service with any of the employers in the MEP counts cumulatively for vesting purposes if employees move from one organization in the MEP to another.
MEP benefits for employers
Employers receive tax breaks for electing to join a MEP, too. They may also save on administrative costs since a MEP files one plan document and a consolidated Form 5500 that covers the MEP and all participating employers.
Unlike a single employer retirement plan, in which the employer is the plan sponsor, the plan sponsor of a MEP is often an industry association or professional employer organization. Either can accept outsourced fiduciary responsibilities for the MEP.
While previously a big deterrent for employers, the “one bad apple” rule also known as the unified plan rule — where the compliance failures of one employer could disqualify the entire plan — was eliminated by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. It is important to note that the Department of the Treasury and the IRS have recently issued proposed regulations containing certain conditions that must be satisfied in order to obtain relief from the unified plan rule. However, the preamble to the proposal states that an employer or PPP may rely on a good faith, reasonable interpretation of the provisions of the SECURE Act amendments until the final regulations are published.
At the same time, smaller MEPs with less than 1,000 participants on the first day of the plan year are exempt from potentially expensive audit requirements, provided no single employer has more than 100 participants.
Pooled Employer Plans (PEPs)
One of the two new multiple employer retirement solutions created by the Secure Act is the pooled employer plan (PEP). These plans are also designed to incentivize more small and mid-sized businesses to offer their employees a retirement plan and potentially offer larger employers the ability to reduce their administrative and fiduciary burdens.
PEPs allow unrelated companies to offer a retirement plan
A PEP expands on what a MEP allows by permitting employers without a common nexus to band together to offer their employees a retirement plan. It offers virtually the same administrative simplicity and cost benefits as a MEP, but it has some exceptions.
PEPs are sponsored by a new type of entity in the retirement plan industry called a Pooled Plan Provider. A Pooled Plan Provider is required to register with the U.S. Department of Labor. The Pooled Plan Provider can be a third-party administrator (TPA) or a similar organization.
PEPs are subject to the same audit rules as MEPs. PEPs with less than 1,000 participants on the first day of the plan year are exempt from large plan audit requirements, provided no single employer has more than 100 participants.
PEPs also require a corporate trustee who is equipped to share the responsibility for monitoring the timeliness of plan contributions.
Defined Contribution Groups
While MEPs and PEPs receive most of the spotlight, another multiple employer retirement solution created by the SECURE Act is the Defined Contribution Group (DCG). Originally known as Group of Plans (GoPs), Defined Contribution Groups differ from other multiple employer solutions in a few ways. For one, it is a collection of single-employer plans — not one consolidated plan. As a result, they are subject to single-employer plan audit requirements and separate plan documents. The main attraction of the DCG is the ability to eliminate individual 5500s for each employer and instead use one consolidated 5500 for the entire DCG.
According to U.S. Department of Labor regulations proposed in September 2021, all participating employers must share the same trustee, trust, named fiduciaries, plan administrator, plan year, and investment options. In addition, there can be no employer stock and investments must be “easy to value” such as mutual fund shares, investment contracts issued by insurance companies and banks valued at least annually, publicly traded securities held by a registered broker-dealer, cash and cash equivalents, and plan loans to participants.
Employers can choose an advisor, consultant, Registered Investment Advisor or third-party administrator to serve in various fiduciary capacities.
Taking advantage of new multiple employer solutions opportunities
Most employers understand that the right employee benefits package can help attract and retain the best and the brightest employees. And the SECURE Act significantly expanded the options available to you and your employees.
Voya serves multiple employer retirement solutions of all types and sizes with the flexibility required to support employees. We understand the various types of multiple employer retirement solutions across both corporate and non-profit markets, and we bring comprehensive tools designed to help employers achieve the benefits they seek:
- Administrative ease
- Risk mitigation
- Improved retirement outcomes for employees
If you are looking to offer your first retirement plan, or are a larger employer interested in reducing your administrative burden, you can bolster your benefits offering by choosing from a variety of plans designed for organizations like yours.
This report is for educational purposes only. Each plan must consider the appropriateness of the investments and plan services offered to its participants.
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