Multiple Employer Pension Plans and ERISA
A “multiple employer pension plan” (or MEPP) is a qualified retirement plan, such as a 401(k) plan, that is sponsored by multiple unrelated employers. The Employee Retirement Income Security Act (ERISA) applies to MEPPs, which must meet the requirements of the Internal Revenue Code in order to receive employer contributions for employee retirement benefits.
Farmers’ cooperatives; business franchises; religious, charitable and educational institutions; and Chambers of Commerce are common examples of connected or affiliated employers that may comprise a multiple employer pension plan.
Multiple employer pension plans are not to be confused with “multi-employer” pension plans, which involve unions and are defined under the Labor Management Relations Act of 1947, known as the Taft-Hartley Act. Multi-employer union plans are commonly found in the hotel, trucking, and construction industries. Multi-employer plans are also governed by ERISA.
A “principal plan sponsor” of the MEPP is a single entity that sets up the pension plan. Day-to-day operational responsibility for the plan, and associated fiduciary responsibility, is held by this principal plan sponsor.
An “adopting employer” that joins the plan, also known as a “plan co-sponsor,” relies on the principal plan sponsor for pension plan administration and asset oversight. Consequently, the co-sponsor generally does not bear any fiduciary responsibility or liability in regard to the multiple employer pension plan. In this regard, the multiple employer plan can be quite attractive to firms since they can offer the benefits of an employee pension plan without incurring any fiduciary risk.
A “single plan document” controls the multiple employer pension plan. This governing document can be written specifically for one particular plan, or purchased from a vendor for adoption by the MEPP, but in either case the plan must be submitted to the Internal Revenue Service for an affirmative determination letter. Generally all adopting employers agree to abide by one consistent set of rules in regard to plan eligibility, vesting and other aspects of plan management.
Situations that may result in ERISA litigation or other legal disputes for a multiple employer pension plan include the following:
• If a single co-sponsor does not meet all participation requirements, such as the “top-heavy” rules, the greater MEPP and all its members may be disqualified by the IRS.
• “Settlor” and “sponsor” responsibilities must be clearly defined and followed to avoid plan expenses that may actually not be permissible.
• Fiduciary responsibilities must be clearly defined and understood by all relevant parties of the principal plan sponsor.
Plan sponsors who have questions about administration of a multiple employer pension plan should seek the advice of a qualified and experienced ERISA attorney.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.