Multiple Employer Plans are for Related Multiple Employers

Last Friday, the Department of Labor (DOL) released Advisory Opinion 2012-04A. I found it interesting because it related to some conversations that I had several months ago. It seems that for the last number of months, one of the very hot topics among retirement plan advisers for smaller plans has been multiple employer plans.

Someone had found a gimmick. You see, a multiple employer retirement plan is a single plan for employees of multiple employers. As a single plan, it needs one Form 5500, one plan audit, one plan document, etc. Each of those elements costs money. Split among lots of employers, that's a lot of savings.

Several of those advisers asked me about this approach. I didn't have statute or regulations in front of me, but remarked that I didn't think it passed the smell test and that government agencies would find a way to kill this idea. The downside of being a part of it if it was found to be non-compliant far exceeded the upside of the cost savings.

Guess what? The DOL Advisory Opinion found more than just failure to pass the smell test. ERISA tells us that a plan must be maintained by an employer or employee organization or both. Employer further includes a group or association of employers acting for an employer.

To break this down into lay terms, organizations in one multiple employer plan need to bear some relation to each other. The DOL found that in the instant plan, many employers bore no relationship to each other.

Bottom line, while the Advisory Opinion only carries limited weight and does not specifically affect qualification under Sections 401 and 501 of the Internal Revenue Code, be assured that Labor and Treasury read each other's pronouncements related to retirement plans.

The downside may have exceeded the upside.