What Is Multiple Employer Plans?
Multiple employer plans (MEPs) are retirement savings plans maintained by two or more employers who are not legally related. This type of plan falls under the broader category of retirement planning and allows unrelated businesses to participate in a single plan, often to achieve cost efficiencies and reduce administrative burdens compared to managing individual plans. MEPs can offer various benefits, such as 401(k)s or defined benefit plans, and are frequently sponsored by an association or employer group.60, 61
History and Origin
The concept of pooled employer plans can be traced back to the Labor-Management Relations Act of 1947, commonly known as the Taft-Hartley Act. This legislation allowed unions and employers to negotiate for benefits provided through jointly managed trusts.58, 59 Initially, these multiemployer plans were designed primarily for union workers within the same industry, where a board of trustees with equal representation from labor and management would administer the plan.55, 56, 57 Over time, the scope of these arrangements expanded.
More recently, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 introduced a new subclass of MEPs called Pooled Employer Plans (PEPs).54 These PEPs removed the requirement for participating employers to share a common business interest or connection, such as being in the same industry or trade association, making them accessible to a wider range of unrelated employers. The SECURE 2.0 Act of 2022 further expanded PEPs to include 403(b) plans for nonprofits and educational institutions.53 The U.S. Department of Labor (DOL) has issued guidance to clarify the fiduciary responsibilities associated with PEPs, aiming to help employers, especially small businesses, provide efficient retirement savings vehicles.52
Key Takeaways
- Multiple employer plans (MEPs) allow unrelated employers to participate in a single retirement plan.51
- MEPs aim to reduce administrative costs and fiduciary responsibilities for participating employers.49, 50
- These plans pool assets, potentially offering better investment options and lower fees due to economies of scale.47, 48
- The SECURE Act introduced Pooled Employer Plans (PEPs), expanding the accessibility of MEPs to unrelated employers.46
- While MEPs offer benefits, potential drawbacks include the "one bad apple" rule, where one employer's non-compliance could technically disqualify the entire plan.45
Formula and Calculation
Multiple employer plans do not involve a universal formula or calculation that applies to the plan itself. Instead, the calculations within an MEP pertain to individual participant contributions, employer contributions, and benefit accruals, which are subject to the specific plan design (e.g., a defined contribution plan like a 401(k) or a defined benefit plan).
For instance, in a defined contribution MEP, employee contributions might be calculated as a percentage of their compensation. Employer contributions could involve a matching contribution or a profit-sharing contribution, which is determined by a formula outlined in the plan document. For a 401(k) plan, the maximum individual contributions are set annually by the IRS.44
In a defined benefit MEP, the calculation focuses on the promised benefit at retirement, which is often based on factors such as years of service and salary history. The employer's contribution to fund these benefits is actuarially determined to ensure the plan can meet its future obligations.
Interpreting the Multiple Employer Plans
Multiple employer plans are interpreted primarily through their design and compliance with regulations set forth by the Internal Revenue Service (IRS) and the Department of Labor (DOL). For employers, participating in an MEP is often seen as a way to offer competitive employee benefits without the full administrative burden and cost of sponsoring a standalone plan.43 The pooling of resources within an MEP can lead to lower per-participant costs for services like recordkeeping and administration, which can be particularly advantageous for small businesses.41, 42
From a regulatory perspective, the IRS outlines that MEPs must comply with qualification rules, although some rules, such as those related to exclusive benefit, eligibility, vesting, and contribution limits, are applied as if all employees of each participating employer are employed by a single entity.40 Understanding the specifics of the MEP's structure, including whether it's a traditional MEP or a Pooled Employer Plan (PEP), is crucial, as PEPs, created under the SECURE Act, offer additional flexibility for unrelated employers.39
Hypothetical Example
Consider "Tech Solutions Alliance," a hypothetical multiple employer plan sponsored by a regional technology trade association. Several small tech startups, "InnovateX," "CodeCrafters," and "PixelPerfect," none of which are related, decide to join the Tech Solutions Alliance MEP to provide retirement benefits to their employees.
Previously, InnovateX, with 15 employees, found the administrative costs and compliance complexities of offering its own 401(k) plan daunting. By joining the MEP, InnovateX's employees can now contribute to a 401(k) plan. The MEP handles the bulk of the plan administration, including compliance filings and recordkeeping, spreading these costs across all participating employers. This allows InnovateX to offer a robust retirement benefit comparable to much larger companies, attracting and retaining talent. The pooled assets of all participating employers within the Tech Solutions Alliance MEP also enable them to access institutional-grade investment options and potentially lower fees that might be unavailable to individual small plans.
Practical Applications
Multiple employer plans have practical applications primarily in the realm of corporate finance and human resources, particularly for small and medium-sized businesses (SMBs) seeking to offer competitive retirement benefits.
- Cost Efficiency: By pooling assets and sharing administrative burdens, MEPs can significantly reduce the per-participant cost of offering a retirement plan. This is especially beneficial for smaller companies that might find the expenses associated with a standalone plan prohibitive.37, 38
- Reduced Administrative Burden: The plan sponsor of an MEP, such as a trade association or a professional employer organization (PEO), often takes on substantial administrative responsibilities, including compliance, recordkeeping, and reporting, thereby lightening the load for individual employers.35, 36
- Fiduciary Responsibility Mitigation: In many MEPs, especially Pooled Employer Plans (PEPs), the pooled plan provider assumes many of the fiduciary responsibilities, such as selecting and monitoring investment options. While employers still retain some fiduciary duties, such as prudently selecting and monitoring the pooled plan provider, their overall liability can be reduced.33, 34
- Portability of Benefits: For employees who move between participating employers within the same MEP, benefits can often be more portable, avoiding interruptions in coverage that might occur with single-employer plans.32
- Enhanced Investment Access: The collective assets of an MEP can give participating employers access to a wider range of institutional-grade investment options and potentially lower fees that might not be available to smaller, individual plans.31
The U.S. Department of Labor offers resources for small businesses considering various retirement savings options, including MEPs, to help them understand and choose suitable programs.30
Limitations and Criticisms
Despite their benefits, multiple employer plans have certain limitations and face criticisms. One significant concern traditionally associated with MEPs is the "one bad apple" rule. This rule posits that if one employer participating in the MEP violates certain qualification requirements, it could technically jeopardize the qualified status of the entire plan for all participating employers.29 While the SECURE Act aimed to mitigate this risk, it remains a point of consideration in regulatory compliance.
Another challenge lies in the potential for complexity, particularly in ensuring that the MEP's design aligns with the diverse needs of unrelated employers. While the administrative burden for individual employers is reduced, the overall complexity of managing a plan for multiple entities still exists at the sponsor level. Furthermore, if a multiemployer plan (a specific type of MEP established through collective bargaining agreements) faces financial distress, it can pose significant challenges for participants and the Pension Benefit Guaranty Corporation (PBGC), which insures certain defined benefit plans. The PBGC's multiemployer program has faced solvency concerns, highlighting the importance of robust funding and management for these plans.25, 26, 27, 28
Multiple Employer Plans vs. Multiemployer Plans
The terms "multiple employer plans" (MEPs) and "multiemployer plans" are often confused due to their similar names, but they refer to distinct types of retirement arrangements within the broader category of retirement plans.
| Feature | Multiple Employer Plan (MEP) | Multiemployer Plan (Taft-Hartley Plan) |
|---|---|---|
| Relationship of Employers | Typically, unrelated employers. These plans are often sponsored by an association, PEO, or a pooled plan provider. | Established through collective bargaining agreements between one or more labor unions and two or more unrelated employers, usually within the same industry.23, 24 |
| Governing Act | Primarily governed by the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC). The SECURE Act created Pooled Employer Plans (PEPs) as a subset of MEPs, removing the "commonality" requirement.21, 22 | Governed by ERISA and IRC, but also explicitly authorized and defined by the Taft-Hartley Act of 1947 (Labor-Management Relations Act), which dictates their joint labor-management governance structure.18, 19, 20 |
| Administration | Often administered by a third-party plan sponsor, such as a PEO or financial institution, which takes on significant administrative and fiduciary responsibilities.16, 17 | Administered by a joint board of trustees with equal representation from labor and management.14, 15 |
| Primary Purpose | To provide cost-effective and administratively streamlined retirement benefits for typically small to medium-sized businesses by pooling resources.13 | To provide retirement and other employee benefits for unionized workers, often allowing for portability of benefits as workers move between employers within the union's jurisdiction.11, 12 |
While both offer advantages of shared costs and reduced administrative burdens compared to single-employer plans, the fundamental difference lies in their origin and governance: MEPs are generally for unrelated employers seeking efficiency, whereas multiemployer plans are a direct result of collective bargaining and union agreements.
FAQs
What are the main benefits of joining a multiple employer plan for a small business?
The main benefits of joining a multiple employer plan for a small business include cost savings due to pooled resources, reduced administrative burdens as a plan sponsor often handles much of the work, and potential mitigation of some fiduciary responsibilities. This allows small businesses to offer competitive retirement benefits that they might otherwise be unable to afford or manage on their own.8, 9, 10
How does the "one bad apple" rule affect multiple employer plans?
The "one bad apple" rule traditionally meant that if one participating employer in a multiple employer plan failed to meet qualification requirements, the entire plan could be disqualified. However, the SECURE Act aimed to address this by introducing Pooled Employer Plans (PEPs) with provisions designed to prevent one employer's non-compliance from adversely affecting the others, thereby isolating the issue to the non-compliant employer.7
Are multiple employer plans only for retirement benefits?
While often associated with retirement benefits like 401(k)s and defined benefit plans, the concept of a multiple employer plan can also extend to other employee benefits, such as health and welfare plans. The structure allows for pooled resources and shared administration for various types of employee welfare plans.6
What is the role of the plan sponsor in a multiple employer plan?
The plan sponsor in a multiple employer plan, which could be an industry association, a professional employer organization (PEO), or a pooled plan provider, is responsible for the overall administration of the plan. This includes tasks such as compliance with regulations, investment selection and monitoring, recordkeeping, and managing the pooled assets. This role significantly reduces the administrative and fiduciary responsibilities for the individual participating employers.3, 4, 5
Can an employee lose their benefits if their employer leaves a multiple employer plan?
Generally, vested benefits earned by an employee in a multiple employer plan are protected even if their employer withdraws from the plan. In multiemployer plans specifically, benefits are often portable, allowing employees to maintain their eligibility and accrued benefits if they move between different employers within the same plan's coverage, which is common in unionized industries. The Employee Retirement Income Security Act (ERISA) provides protections for participant benefits.1, 2