283 / MEP Impact

The SECURE Act relaxed the “one bad apple rule” for small business owners interested in the multiple employer plan (MEP) structure. Under the one bad apple rule, the entire MEP could be disqualified based upon the actions of only one employer that participated in the plan. The SECURE Act provides that if one employer’s actions would disqualify the plan, only that employer’s portion of the MEP will be disqualified. The SECURE Act relief from one-bad-apple violations applies if the MEP terms provide: (1) the assets of the plan attributable to employees of the employer will, in most cases, be transferred to a plan maintained only by that employer and (2) the employer (and not the plan in which the failure occurred) will be held liable for any liabilities with respect to such plan attributable to the employees of the employer.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether recent changes to the MEP rules will have a positive impact on the availability of retirement savings options.

Below is a summary of the debate that ensued between the two professors.

Their Votes:



Bloink



Byrnes

 

Their Reasons:

Bloink: Many small business owners simply don't want to bear the burden of offering a retirement plan on their own so they do nothing—meaning that those employees don’t have a simple option for retirement savings at their fingertips. MEPs give them an attractive option to spread that burden among several different employers. Eliminating the one bad apple rule shields participating employers from fiduciary liability if one member of the MEP violates the MEP rules or otherwise fails to satisfy applicable fiduciary duties—providing powerful protection for employers participating in the MEP.

Byrnes: The fact is, most small business owners have never heard of MEPs and PEPs--so there remains both the task of convincing these business owners to offer a retirement plan and educating them about the MEP and PEP options. There's also really no guarantee that these types of plans will actually generate the cost savings that smaller employers are looking for, meaning that we shouldn’t be relying on these vehicles to save the day when it comes to retirement savings options.

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Bloink: Relaxation of the one bad apple rule and common bond requirements will go a long way toward opening the MEP structure to small business owners. Employers no longer have to worry about the risk of one single default disqualifying the entire plan--and the relaxed rules make it much easier to join a MEP or PEP in the first place. Many employers are just looking for the most simple option when it comes to offering this type of employment benefit.

Byrnes: Employers do retain some degree of fiduciary responsibility when joining a MEP. With all of the publicity surrounding the widespread applicability of the fiduciary standard generally under the DOL’s new standard, that is something that many business owners have likely heard about even if they don’t know anything about MEPs --and it could be something that serves to make the idea of offering any retirement plan less attractive as a whole.

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Bloink: The new Pooled Employer Plan (PEP) option will reduce administrative burdens and the risk of fiduciary liability, removing some of the major barriers to employers' willingness to offer retirement plans. While MEPs and PEPs aren’t the perfect solution for every single employer, any steps toward increasing the availability of employer-sponsored retirement plans should be viewed as a positive. MEPs will ultimately give some employers the tools they need to offer employees a retirement savings option.

Byrnes: We also have to remember that it isn't always easy to exit the MEP--meaning that when an employer grows and wants to offer a standalone 401(k), it might not be a simple undertaking. The bottom line is that MEPs aren’t always the best tool and we should be taking steps to make more traditional types of defined contribution plans more attractive.