Weekly Links: The SECURE Act Provides Greater Access to Multiple Employer Plans

While multiple employer plans (MEPs) were in existence prior to the passage of the SECURE Act, small business will now have greater access to such plans. A MEP is a plan maintained by two or more unrelated employers. These plans allow employers to form a pooled 401(k) retirement plan, but still have separate accounts for each adopting employer, with different plan designs for each employer. By doing so, businesses can provide retirement plans with lower costs by utilizing the same administrative structure. Furthermore, these plans require a lesser compliance burden than if each employer offered the plan separately.

Prior to the SECURE Act, the Department of Labor (DOL) required plans be tied together by “genuine economic or representative interests.” This generally meant that employers must have a prior connection, such as membership in the same association. In addition, these plans were further burdened by separate nondiscrimination testing, and if one company’s plan failed to meet this testing criteria, the whole plan could be disqualified — often called the “one bad apple” rule. Because of these burdens, MEPs are fairly uncommon these days.

With the passage of the SECURE Act, employers are now allowed to enroll in “open” MEPs for unrelated small businesses. Furthermore, the Act has repealed the “one bad apple” rule, no longer exposing the entire plan to disqualification for a single employer’s nondiscrimination violation. The loosening of these two rules should open the market for MEP 401(k) plans. While these loosened provisions are a benefit to employers, it should be noted that each employer still has the fiduciary responsibility to be prudent in deciding on whether to join a MEP.

The SECURE Act: a good start but far more is needed from The Brookings Institution

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