On May 25, 2012, the Department of Labor (DOL) issued Advisory Opinion 2012-03A and Advisory Opinion 2012-04A (collectively, Advisory Opinions) that address the legitimacy of so-called "open" multiple employer plans (Open MEPs) under ERISA. The DOL concludes that an Open MEP, or an arrangement under which an entity purports to sponsor and administer a single multiple employer 401(k) profit-sharing plan covering its employees in addition to employees of unrelated employers, is not a single retirement plan for purposes of ERISA but is rather a collection of individual plans maintained by each employer.

If the DOL's views in the Advisory Opinions were to apply to similar arrangements, among other potential consequences, each participating employer would be required to:

Multiple employer plans (MEPs) have been commonly offered for years by Professional Employer Organizations (PEOs), or employee-leasing organizations, to their employer-clients and by employer associations within certain industries. The distinction between MEPs and the arrangements described in the Advisory Opinions, which are commonly referred to as Open MEPs, is that Open MEPs are not limited to adoption by employers that are bound by a common trade or industry association or similar employer industry-related group.

Open MEPs have become more popular in recent years and many of the advantages cited by proponents of these arrangements arise from their purported status as a single plan under ERISA. Employers participating in these arrangements were of the view that they would not be required to file annual Form 5500s or engage in annual plan audits, which is no longer the case according to the DOL's position in the Advisory Opinions. It should be noted, however, that the DOL's view in the Advisory Opinions is limited to each of these plans' status under ERISA, and does not speak to the status of these plans under the Internal Revenue Code of 1986 (IRC).

Advisory Opinion 2012-04A responds to a request for the DOL's view on whether an Open MEP constitutes a single employee pension benefit plan within the meaning of ERISA Section 3(2) where multiple unrelated employers adopt a single plan to provide retirement benefits to their employees. TAG Resources LLC (TAG) is a registered investment advisory firm and 401(k) Advantage LLC (Advantage) is a limited purpose corporation formed solely for operating the 401(k) Advantage LLC 401(k) Plan (Advantage Plan). The Advantage Plan was intended to be a single multiple employer 401(k) plan covering employees of Advantage as well as employees of unrelated employers that adopt the plan. Each unrelated employer adopted the plan by signing a similar participation agreement under which the employer:

In analyzing this arrangement, the DOL states that although the Advantage Plan appears to provide the benefits of an "employee pension benefit plan" under ERISA Section 3(2), to be an employee pension benefit plan, it must also be established or maintained by an employer, an employee organization, or both. Regardless of the terms of the participation agreements describing Advantage as the sponsor of the plan, the DOL does not agree that Advantage is acting as an "employer" or as a bona-fide employer association with a sufficient employment-related connection to the interest of employers whose employees are covered by the plan.

The DOL distinguishes Advisory Opinions 2003-17A and 2001-04A, in which it recognized that a single, multiple employer plan may exist where "a cognizable group or association of employers, acting in the interest of its employer members, establishes a benefit program for the employees of member employers and exercises control of the amendment process, plan termination and other similar functions on behalf of those members." Here, the DOL states, there is no genuine organizational relationship between the employers, and, therefore, no employer group or association exists for purposes of ERISA.

The DOL goes on to conclude that:

This view is consistent with the DOL's historical interpretation of the term "employer" under ERISA Section 3(5) as applied to multiple employer welfare arrangements (MEWAs). In both Advisory Opinions, the DOL rejects the view that a less restrictive interpretation should be applied to retirement plans.

Finally, the DOL clarifies that it is not expressing any opinion on the application of IRC Section 413(c), which generally provides the statutory basis on which these types of arrangements achieve tax-qualified status under the IRC. It rejects the argument that IRC Section 413(c) controls whether an arrangement constitutes a single plan under ERISA and concludes that the Advantage Plan is not an employee benefit plan under ERISA.

Advisory Opinion 2012-03A was issued by the DOL on the same day as 2012-04A and contains largely the same analysis applied to a somewhat different set of facts. In this opinion, the entity at issue was National Retirement Plan, Inc. (NRP), a Minnesota corporation that was established with the sole business purpose of taking over retirement plans that were abandoned by various employer plan sponsors. NRP intended to merge unrelated, abandoned individual 401(k) plans into the NRP Plan and thereafter manage and administer the NRP Plan as an ongoing, single retirement plan. However, this request for guidance is different in that NRP had not yet established this arrangement and was prospectively requesting a ruling from the DOL on whether NRP would constitute an employer under ERISA for purposes of sponsoring an ERISA covered plan.

Advisiory Opinion 2012-03A addressed a slightly different issue in that it analyzed whether, in the context of the arrangement to take over abandoned plans, there is any basis to find that NRP was acting as an employer "indirectly in the interest" of each participating employer in the plan. However, the DOL's conclusion is the same as in 2012-04A. The DOL concludes there is no sufficient employment-based nexus (unrelated to the provision of benefits) between NRP and the employers of employees that benefit from the abandoned plans, or among the different groups of employees that participate in these plans, to justify a conclusion that a formal association or group of employers is involved in the arrangement. As a result, the DOL also concludes that, under ERISA, NRP would not constitute an employer and, therefore, that the NRP Plan would not constitute a single employee benefit plan. Rather, the DOL views the NRP Plan as a "collection of separate, albeit apparently abandoned, employee benefit plans."

Finally, the DOL notes that it sponsors an Abandoned Plan Program which provides a mechanism that facilitates the winding up and terminating of plans that have been abandoned.

The DOL's conclusion has several potential consequences for employers who participate in so-called Open MEPs similar to the arrangements analyzed in the Advisory Opinions. Employers participating in these arrangements may wish to carefully review the terms of the arrangement to determine how to bring their separate plans into compliance under ERISA if the DOL's views were to apply. For example, even though certain aspects of the arrangement may be able to be continued (it should continue to be permissible for the assets of each plan to be invested in a commingled trust), if the DOL's views were applied, each employer participating in this type of arrangement would now be required to:

This may cause some employers to reconsider whether to participate in Open MEPs since many of the cost savings they provide may be in jeopardy.

Employers may also wish to consider the extent of their potential liability for their failures to file Form 5500s and to engage in annual plan audits during the time in which they believed the arrangement satisfied the requirement of a single plan under ERISA. Because this guidance was issued in the form of individual Advisory Opinions that technically apply only to the individual facts and circumstances presented to the DOL, it is difficult to predict whether the DOL will apply this enforcement position only prospectively to new plans or whether it will pursue enforcement against employers participating in an existing Open MEP arrangement.