What Is a MEP in Insurance? A Retirement Plan Option

Multiple Employer Plans (MEPs) serve as a retirement plan option, allowing multiple, often unrelated, employers to participate in a single retirement plan structure. This approach aims to provide a more streamlined and potentially cost-effective way for businesses, particularly smaller ones, to offer retirement benefits to their employees. MEPs pool resources and administrative responsibilities, differing from traditional single-employer plans by centralizing many of the tasks associated with plan management. The design of these plans can help employers navigate the complexities of retirement savings provisions.

Understanding Multiple Employer Plans

A Multiple Employer Plan (MEP) is a retirement savings plan that allows two or more employers, who are not part of the same controlled group or affiliated service group, to join together under a single plan structure. Unlike a single-employer plan where one company sponsors and manages its own retirement plan, an MEP operates as a unified plan for all participating employers. The plan sponsor for an MEP is often an industry association, a professional employer organization, or another third party.

Each participating employer in an MEP adopts the single plan, yet they are treated as separate entities for certain tax qualification requirements, such as non-discrimination testing. The pooling of resources allows for economies of scale, potentially leading to lower fees and a broader range of investment options. By operating under a single plan document and often filing a consolidated Form 5500, MEPs streamline compliance and reporting for their participants. The structure aims to alleviate some of the administrative and fiduciary responsibilities that would typically fall solely on a single employer.

Advantages for Businesses and Workers

Participating in a Multiple Employer Plan offers several advantages for businesses, particularly those with limited resources. One significant benefit is the reduction in administrative burden, as many tasks such as recordkeeping, compliance testing, and plan reporting are centralized and managed by the MEP sponsor or a third-party administrator. This outsourcing means employers can dedicate less staff time and resources to retirement plan management, enabling them to focus more on their core business operations. For example, instead of each employer filing a separate Form 5500, an MEP often files a single, consolidated report, simplifying governmental filings.

Cost savings represent another advantage for businesses joining an MEP. By pooling the assets of multiple employers, MEPs can achieve economies of scale, which often translates to lower investment fees and reduced administrative expenses for all participants. Small businesses, which might face high startup and ongoing administrative fees for individual plans, can share these costs across many participants in an MEP, potentially halving their expenses. This collective bargaining power with service providers can lead to more competitive pricing on various plan services.

For employees, MEPs provide access to a retirement plan, which might otherwise be unavailable, especially if they work for a small business that does not offer one. Employees in MEPs may benefit from potentially better investment options and lower fees compared to what they might find in individual retirement accounts, thanks to the larger asset pool. The professional management of the plan by the MEP sponsor also helps ensure proper oversight and compliance, contributing to the plan’s integrity and protecting participant interests. Offering a retirement plan through an MEP can also enhance a business’s ability to attract and retain talent in a competitive job market.

Types of Plans and Key Roles

Multiple Employer Plans come in different structures, primarily distinguished by the relationship among participating employers. “Closed” MEPs typically involve employers who share a common organizational bond, such as being members of the same professional association, industry group, or geographic area. This commonality, or “nexus,” is a defining feature, meaning the employers are connected for reasons other than solely participating in the retirement plan. For example, a trade association might sponsor a closed MEP for its members.

In contrast, “open” MEPs historically allowed unrelated employers to participate without a common bond, although their regulatory status was less clear prior to recent legislative changes. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 introduced Pooled Employer Plans (PEPs). PEPs are a specific type of open MEP that explicitly allows unrelated employers to participate in a single retirement plan, eliminating the common nexus requirement.

Several key parties are involved in the operation of MEPs and PEPs. The plan sponsor, or Pooled Plan Provider (PPP) in the case of a PEP, is the entity that establishes and maintains the plan. The PPP assumes many of the administrative and fiduciary responsibilities, including regulatory compliance, reporting, and selecting service providers. This entity is registered with the Department of Labor (DOL) and the Internal Revenue Service (IRS) and serves as the named fiduciary and plan administrator.

The plan administrator, often the MEP sponsor or PPP, is responsible for the day-to-day management of the plan, including handling employee contributions, managing distributions, and ensuring compliance with plan rules and regulations. Fiduciaries, whether the plan sponsor or other designated parties, have a legal obligation to act in the best interests of plan participants. While the MEP sponsor takes on significant fiduciary duties, participating employers still retain a fiduciary responsibility to prudently select and monitor the MEP or PEP and its providers.

Regulatory Considerations

Multiple Employer Plans operate within a framework of federal regulations, primarily governed by the Employee Retirement Income Security Act of 1974 (ERISA), alongside rules from the Department of Labor (DOL) and the Internal Revenue Service (IRS). These agencies provide oversight to ensure the plans are properly managed and that participant interests are protected. Compliance with these regulations is necessary for the plan to maintain its tax-qualified status and avoid potential penalties.

A historical challenge for MEPs was the “one bad apple” rule, also known as the unified plan rule. Under this rule, a qualification failure by one participating employer could potentially disqualify the entire MEP for all employers, leading to significant tax consequences. However, the SECURE Act introduced an exception to this rule for certain defined contribution MEPs, including PEPs, allowing the plan to remain tax-qualified even if one participating employer fails to meet compliance requirements, provided specific conditions are met. The IRS has issued proposed regulations to implement this “one bad apple” exception, outlining procedures for the MEP administrator to address unresponsive participating employers, including notice requirements and potential spin-off of assets. While the SECURE Act and subsequent guidance aim to simplify and expand access to MEPs, employers still need to navigate the regulatory landscape. The goal of regulatory oversight is to promote the integrity and stability of these pooled retirement arrangements.