April 30, 2019

TIPS for TPAs: MEPs: Compensating the Sponsor, Part II

By Fred Reish, Bruce L. Ashton and Joshua J. Waldbeser

Moral of the Story

Given the possible advantages of multiple employer plans (MEPs) – in transferring fiduciary responsibility and administrative burdens and in reducing plan costs – they may be an attractive business opportunity for TPAs. This may be especially true if legislation is passed this year to authorize Open MEPs. At the same time, TPAs need to be aware of the issues related to their compensation if they act as an MEP sponsor.

We recently summarized the first part of a two-part article for the ASPPA Plan Consultant – written by Fred Reish and our partners Bruce Ashton and Josh Waldbeser -- about compensation of MEP sponsors. The second part, published earlier this month, discusses how an MEP sponsor can get paid without violating the prohibited transaction rules of ERISA or the Internal Revenue Code.

MEPs – especially Open MEPs – present a business opportunity for TPAs. A TPA could be hired to provide its traditional set of services to an MEP.  But if the pending legislation passes, it could serve as the MEP sponsor, assuming it is willing to take on the role of a fiduciary.  

To recap, a multiple employer plan (or MEP) is a plan adopted by a number of employers that are not members of a controlled group. Under the Code, the plan is treated as a single plan, but under current DOL guidance, an MEP is a single plan for ERISA purposes only if there is a connection among those employers. Otherwise, the MEP is considered to be a group of separate plans. This could change as a result of legislation pending in Congress that would authorize “Open MEPs.” 

The second article gets into the details of compensating an MEP sponsor and reimbursing it for expenses. Fred, Bruce and Josh point out that the participating employers must determine whether the MEP sponsor’s compensation is reasonable, though it is the MEP sponsor’s obligation to approve the compensation of other service providers. They also delve into ways in which the sponsor’s compensation may be changed without violating the prohibited transaction rules…since, as a fiduciary, the sponsor cannot approve a change in its own compensation. They also answer the question of whether an MEP sponsor can “profit” from the MEP, pointing out that it may, so long as it does so within certain constraints. The same is true of the ability of the MEP sponsor to be reimbursed for expenses incurred in operating the MEP. 

Part two of the article discusses these complex issues in more detail.

A Message to Third Party Administrators

This is part of our series of articles for TPAs. The earlier articles can be found below:

Our goal is to provide TPAs with information about important issues and developments for retirement plans, including IRS and DOL guidance and investigations.

If you know of others who can benefit from the articles, please have them sign up here.

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