The Department of Labor recently published two advisory opinions (No. 2012-03A and No. 2012-04A) that are likely to limit the benefits of so-called "open MEPs," which have recently become popular among smaller employers. Several organizations have promoted the use of multiple employer plans (MEPs) for unrelated companies as having advantages with respect to mitigation of fiduciary risk, eliminating individual plan audits (one audit is performed for the entire plan), streamlining plan operations and possibly allowing for institutional class investment options. In order to obtain these benefits, a MEP must be considered a single employer plan under ERISA, but the DOL opinions state that each employer participating in an open MEP maintains its own single employer plan.
The opinions address two similar situations. In the first, a company was established with the sole business purpose of taking over retirement plans that have been abandoned by their employer plan sponsors. The company would serve as both the plan sponsor and plan administrator and would merge unrelated, abandoned defined contribution plans and thereafter administer the ongoing plan. In the second, a company operates a defined contribution plan in which over 500 unrelated employers participate. This company is the plan sponsor and named fiduciary. The arrangement is intended to limit the fiduciary obligations of the participating employers to the selection of the plan for their employees. The employers enter into participation agreements delegating all responsibilities as plan administrator, including interpretation of plan terms, claims procedures, obtaining plan audits, and appointing investment advisors and investment managers to the company.
The DOL analyzed both arrangements in the same way. Under ERISA, an "employee pension benefit plan" must be established or maintained by an employer or an employee organization to provide retirement income to employees. ERISA defines an "employer" as a person acting directly as an employer in relation to an employee benefit plan or indirectly in the interest of an employer, including a group or association of employers acting for an employer. A multiple employer plan may exist where an association of employers establishes a benefit program for employees of its members. For this purpose, an association must consist of employers connected by a genuine economic or representational interest unrelated to providing benefits. However, in both cases described above, the company maintaining the plan is not acting directly or indirectly as an employer. The company neither directly employs the participating employees nor is a bona fide association or group of employers with other common interests. Execution of identical documents as a means to fund or provide benefits is not sufficient to create this type of relationship.
As a result, the DOL concluded in both opinions that the plan in question does not constitute a single multiple employer plan under ERISA but instead is an arrangement under which each participating employer maintains a separate plan for the benefit of its own employees. While the companies that maintain these plans are subject to ERISA's fiduciary provisions to the extent that they have control over plan assets or discretionary control over the administration or management of the participating employer's separate plans, each employer sponsoring a plan that participates in such an arrangement also is subject to ERISA's fiduciary provisions. Employers may be approached by companies that sponsor "open MEPs" and should be aware of the DOL's guidance and the resulting limitations on the potential benefits of this type of arrangement.