what’s a mep and why are you hearing so much about it?

Sheri A. Creger, CPFA  Ι  October 30, 2018





A MEP is a multiple employer plan. Simply put it is a type of retirement plan that pools contributions made by two or more unrelated employers. The benefit of this arrangement is that the employers can pool their resources to offer a retirement plan at a cost and level of risk that is not prohibitive. To benefit from the MEP structure, the plan must be treated as a single plan and thereby fit the ERISA definition of “employer”. If it does not fit the definition of ERISA it will be treated as a separate plan for each employer.

Because of the lack of retirement plan coverage for small businesses on August 31, 2018 President Trump issued an Executive Order 13847, that called for the Secretary of Labor to explore policies that would expand access to retirement plans for American workers. The Executive Order specifically called out the policies surrounding MEPs and if a business owner could sponsor or adopt a MEP.

Then on October 23, 2018 the Department of Labor published its proposed rule. The release proposes to change the definition of “employer” under ERISA §3(5) in a manner that would make MEPs more widely available. The definition would be changed so that groups or associations can offer a MEP without a common trade or line of business so long as employers have a place of business within the same state or metropolitan area. The proposal also states that professional employer organizations (PEO) as an entity that could sponsor a MEP. To do so, a MEP must provide substantial employment functions. PEOs can rely on 1 of 2 safer harbors to ensure the “substantial employment function” requirement is met. Working owners can qualify as both employer and employee for the purposes of participating in the MEP.

Under the proposed rule, a group or association can establish a MEP if:

  1. It has at least one substantial business purpose unrelated to providing employee benefits.
  2. It has a formal organizational structure.
  3. A commonality of interest exists between its employer members (now includes common geographic location).
  4. Each employer member of the group directly employs at least one employee covered under the plan.
  5. The plan is only available to employees and former employees of the employer members.
  6. Its functions and activities are controlled by its employer members, including the control of the plan.
  7. It is not a financial services firm (nor owned or controlled by one).

What the proposal does not include and can be further discussed is Open MEPs, does not relieve employers of ALL fiduciary responsibility and does not change the “One Bad Apple” rule.

How can business benefit from this proposed rule? The proposed rule could make it easier for employers to get together and provide employees access to a quality retirement plan.