The American Retirement Association has submitted a comment letter recommending that the Department of Labor amend its regulations under Section 3(5) of ERISA in order to facilitate the sponsorship of DC plans maintained on behalf of multiple unrelated employers – open MEPs.
The Oct. 29 letter was sent to Joe Canary, Director of the Office of Regulations and Interpretations at the DOL’s Employee Benefits Security Administration, in response to the DOL’s request for further comments on a broad range of issues related to open MEPs. “The ARA believes that open MEPs hold the potential to increase efficiencies, manage costs more effectively, reduce burdens on employers, and improve retirement outcomes for the American workforce,” the letter says. “ARA believes that extending the availability of MEPs is a positive development in expanding retirement plan coverage for working Americans,” it adds.
The DOL had posed a variety of detailed questions regarding open MEPs, aspects of their operation and how they could best be regulated. The ARA offered its take on issues the DOL and some commenters raised.
The ARA said that it supports amending 29 CFR 2510.3-55 to expressly permit financial institutions or other persons to maintain an open MEP. Wrote the ARA, “The most effective means of supporting the overarching policy goal of expanding access to workplace retirement savings plans is to increase sponsorship opportunities for MEPs.”
As for what type of person or persons should be recognized as capable of being an “employer” under the “indirectly in the interest” clause in Section 3(5) of ERISA for purposes of establishing and maintaining an open MEP, the ARA responded, “Though the meanings of acting ‘directly as an employer’ or ‘indirectly in the interest of an employer’ is not made clear in the statute, the ARA believes that there should not be restrictions on the type of commercial entities (e.g., banks, insurance companies, pension recordkeepers, and TPAs) that may be treated as an ‘employer’ under the ‘indirectly in the interest’ clause.” The letter says that the ARA believes this position “is entirely consistent with DOL’s public policy goals” and is supported by the statute.
Regarding potential conflicts of interest, the ARA noted that “like many service providers to plans, commercial entities may have conflicts of interest with respect to their plan clients. Indeed, similar conflict-of-interest concerns currently exist with professional employer organizations (PEOs), which have been operating as sponsors of MEPs for some time.”
The ARA said that prohibited transaction relief “will be required, including for conflicts of interest that may arise with a service provider that offers products in conjunction with MEP sponsorship.” It added that “Prohibited transaction exemptions, including under ERISA 408(b)(2), will mitigate many of these conflicts,” and offered additional suggestions regarding other potential conflict mitigation strategies.
But the letter also says that the ARA considers it to be just as important that the DOL “exercise an oversight role with regard to MEP providers” and that it “should closely monitor the annual reports filed by open MEPs” and exercise its “broad authority to conduct investigations and audits of open MEP service providers to protect plan participants from fraud and abuse.”
The ARA letter expresses the view that in general, “any company that meets all of the requirements should be permitted to sponsor a MEP.” However, it also says that certain conditions on providers of open MEPs are appropriate. For instance, the letter says that the “ARA also believes that employers should be adequately informed regarding the structure of open MEPs and how they differ from other pooled arrangements and single employer plans.” In addition, the ARA says that it “would like to emphasize that it is essential that the DOL exercise an oversight role with regard to MEP providers, consistent with the SECURE Act conditions and the Executive Order instruction that open MEP guidance include ‘appropriate safeguards.’”
The ARA suggests that the DOL “consider maintaining the two approaches under the current regulation – for bona fide groups or associations and bona fide PEOs – and add a third group for commercial entities that sponsor open MEPs.” It argues that “Commercial entities, such as recordkeepers, can currently act as plan sponsors, plan administrators, and recordkeepers” and that they “could easily move into the role of plan sponsor as well,” which “would permit the DOL to remain consistent with its own guidance and create guidelines and safeguards tailored to commercial entities that act as sponsors of open MEPs.”
Regarding concerns about the cost and complexity that could arise from the application of the qualification requirements under Code Section 401(a), the ARA writes, “In the macro sense, competition in the marketplace ultimately will determine whether open MEPs are economically viable. The DOL and the IRS play a key role in mitigating the costs and complexities with respect to open MEPs. But if the goal is to increase retirement plan coverage, we should allow the marketplace to innovate toward cost effective ways to establish and maintain open MEPs.” The letter also outlines several advantages MEPs offer employers, especially smaller to mid-sized employers, as well as their employees.
The letter notes that there is concern over so-called “corporate MEPs,” which are MEPs “sponsored by a group of employers related by ownership but at a common ownership level insufficient to constitute a controlled group or affiliated service group under the Internal Revenue Code.” It observes that such plans currently are the most common form of MEP, and that the DOL, “to our knowledge has not appeared to question the ‘bona fide’ status of the groups of employers participating in such a MEP.”
The ARA says that “Current regulatory initiatives to make it easier for employers to participate in MEPs might obviate the need for corporate MEPs,” but that “regulatory clarity would be helpful.” It adds that “the DOL and IRS should work together on guidance for open MEPs and corporate MEPs.”
The ARA expressed support for members of an affiliated service group within the meaning of Code Section 414(m) being treated as an “employer” under Section 3(5) of ERISA. Doing so, it said, would better coordinate DOL rules with the tax code. “ARA believes this degree of harmonization would be more understandable to small employers, facilitating overall compliance,” says the letter.
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